Capstone believes that US-made parts for unmanned aircraft systems (UAS), or drones, will see increased demand as new US regulations prohibit drones and UAS components produced in foreign countries. Separately, we believe that the counter-drone (C-UAS) market will grow as state and local law enforcement prepare for short and long term drone threats to public safety.
- In December 2025, the Federal Communications Commission (FCC) halted certification of foreign UAS and UAS-component designs, deeming them a national security threat. Separately, the federal government has authorized state and local law enforcement to use counter-UAS authorities to address potential drone threats, including the upcoming 2026 World Cup and America250 celebration, with attached grant funding.
- For the UAS supply chain, we see opportunities for the emergence of domestic manufacturers of critical UAS components like batteries, motors, engines, and flight controllers. Domestic sources will see demand spike as their foreign counterparts fail to certify new products and therefore depart the US market.
- We also see clear market opportunities for C-UAS providers who will benefit from new demand from state, local, and federal law enforcement. Providers of jammers, radars, and radio frequency detection equipment are best positioned in the law enforcement market, which will see up to $2 billion in new federal spending.
Capstone believes that the US-based UAS manufacturing base represents a significant investment opportunity, particularly for private capital that can expand production capacity for key component parts and create economies of scale across the supply chain. We similarly believe that the counter-UAS market is poised for significant growth. Both the UAS and C-UAS opportunities are driven by strong, durable US federal policy and regulatory tailwinds.
Capstone believes that the following technology types and representative companies highlight specific areas that are set to benefit.
Exhibit 1: Key Value Chain Elements in the UAS and C-UAS Sectors
| Technology/Component Type | Use | Description | Example Companies |
| Batteries | UAS | Onboard power sources for UAS systems | MaxAmps; PacketDigital; Lyten |
| Electric Motors | UAS | Propulsion for UAS systems | KDE Direct; ePROPELLED |
| Radio Communications and Control | UAS | Operator-UAS communications | Persistent Systems |
| Jamming | C-UAS | Disruption of hostile UAS communications | D-Fend Solutions; Airsight |
| RF Detection | C-UAS | Radiofrequency-based UAS detection | Edgesource |
| Radar | C-UAS | Radar-based UAS detection | Echodyne; Robin Radars |
Policy and Regulatory Drivers to Strengthen the Domestic UAS Manufacturing Sector
The FAA identified UAS as the fastest growing US aviation segment. However, to date, Chinese manufactured UAS systems and component parts have captured a majority of the US market, with some estimates suggesting that as much as 70% to 90% of drones used across domestic commercial, government, and consumer sectors come from one Chinese company, DJI. The Trump administration wants to drive out Chinese-made UAS and has made strengthening the American UAS industry a key policy priority, exemplified by the June 2025 Executive Order 14307, titled “Unleashing American Drone Dominance.”
Capstone believes that the most impactful UAS regulatory driver to date is the December 2025 Trump administration decision to add foreign-built UAS and critical UAS components to the Covered List. The Covered List is maintained by the Federal Communications Commission (FCC) and designates communications equipment deemed to pose a national security risk. The inclusion of foreign manufactured UAS and components will cause a dramatic rise in demand for domestic UAS and parts. This FCC action effectively ends the certification of new foreign UAS or critical UAS part designs, with some exceptions, for domestic sale and operation through at least January 1, 2027. Capstone believes the ban will be extended for the foreseeable future based on the Trump administration’s rhetoric in support of building out the domestic UAS industrial base.
Domestic Sourcing Challenges Will Drive Investment Opportunity
Domestic UAS manufacturers like Skydio, AeroVironment, Inc. (AVAV), and Red Cat Holdings, Inc. (RCAT) are already meeting military needs. However, they still overwhelmingly rely on Chinese or other foreign sources for their critical inputs—the same components that the FCC explicitly added to the Covered List in December 2025.
Practically speaking, the new FCC rules means that all commercial and defense market users of UAS will need to shift their sourcing of UAS and component parts to domestic producers. Demand should therefore materially increase for US producers of key components such as data transmission devices, communications systems, flight controllers, ground control stations and UAS controllers, navigation systems, sensors and cameras, batteries and battery management systems, and motors. This presents an opportunity for investors to capitalize on nascent or smaller parts manufacturers who will see a substantial increase in demand, or to create more integrated platform suppliers given the significant reordering of supply chains that is now beginning. Companies in this space include ePROPELLED and KDE Direct, both UAS motor manufacturers, as well as battery manufacturers MaxAmps and PacketDigital. Lyten is also working on next-generation graphene batteries with UAS applications.
Law Enforcement Emerges as a New Key C-UAS Buyer
The rapid expansion of access to UAS is also driving concerns about the ability to defend against their use by malign actors, both on the battlefield and in civilian settings. Recent US federal policies and funding sources to support the adoption of counter-UAS (C-UAS) technologies represent a second major UAS-related investment theme. C-UAS encompasses a range of systems that can shoot UAS out of the sky. Examples include “hard kill” systems, like lasers and other directed energy weapons, as well as interceptor drones and missiles. “Soft kill” systems like jammers confuse drones or make them land, and air domain awareness sensors like radars, communications interception equipment, and infra-red cameras are used to detect and track drones.
While the US military has long been interested in counter-UAS capabilities and is taking steps to rapidly field them, interest among US law enforcement has been comparatively small. However, a set of provisions in the fiscal year 2026 National Defense Authorization Act (NDAA), known as the Safer Skies Act, granted new, permanent C-UAS authorities to state, local, territorial, and tribal (SLTT) law enforcement bodies for the upcoming 2026 World Cup and America250 celebrations. These new authorities substantially expand the potential customer base for C-UAS systems that we believe represent a new and durable market for manufacturers of C-UAS systems and components. Nation-wide, state and local law enforcement spending totalled over $150 billion in 2023 (latest information available), a $22 billion increase since 2020. Spending in World Cup host states, as well as Washington, D.C., totalled $86 billion alone the same year.
The Federal Funding Catalyst
These new local and state law enforcement authorities arrived just a month after the creation of a new federal grant program to help states fund counter-drone operations. The Federal Emergency Management Agency (FEMA) launched the C-UAS grant program in November 2025 and has since awarded $250 million in grants to 11 states that will host World Cup events in the summer of 2026, as well as to the National Capital Region (NCR). This program has been publicized as the fastest non-emergency grant disbursement in the agency’s history. The 11 World Cup host states and the NCR received at least the statutory minimum funding, with additional funds competitively awarded based on specific event security risk levels. The top three recipients included California at $34 million, Texas at $30 million, and the NCR at $28 million.
FEMA plans to dedicate an additional $250 million in grants in the next fiscal year, spread between all states and territories. Grant funding alone will not be enough to close the C-UAS capability gap; however, states will almost certainly begin allocating additional funding of their own. As a result, we expect state-level purchases of C-UAS technologies to begin increasing significantly.
Initial SLTT law enforcement C-UAS users will be concentrated in the metro areas hosting World Cup 2026 games: Atlanta, Boston, Dallas, Houston, Kansas City, Los Angeles, Miami, New York City, Philadelphia, Seattle, and San Francisco. Together, these metro areas account for approximately 25% of the US population. Capstone believes these metro areas will likely provide additional funding for C-UAS technology and that nationwide state, local, territorial, and tribal C-UAS procurement will substantially expand in the coming years, funding some degree of C-UAS capability across the country.
Separately, funding for new federal law enforcement C-UAS capabilities has also increased. In December 2025, the Department of Homeland Security (DHS) concluded a major new competition to contract with multiple C-UAS providers for a projected maximum potential value, inclusive of all selected providers, of $1.5 billion. The contract will be managed by the new Program Executive Office for Unmanned Aircraft Systems and Counter‑Unmanned Aircraft Systems. This contract, to be awarded after DHS completes its evaluation of competitors’ bids, will allow all DHS components (e.g., Customs and Border Protection) to procure C-UAS capabilities. While this competition has already ended, Capstone believes it clearly indicates that federal law enforcement C-UAS opportunities are only increasing.
Law Enforcement Users and Specific Needs
Law enforcement C-UAS capabilities will differ from military capabilities due to law enforcement’s need to prevent collateral damage and maintain long-term persistence near critical infrastructure, therefore shaping the demand landscape. Capstone believes these law enforcement customers will prioritize mobile C-UAS systems capable of performing “soft” kills, such as signal jamming to neutralize a drone threat, rather than physically destroying hostile UAS, as well as systems that provide localized airspace domain awareness, such as radar. These law enforcement requirements are likely to increase demand for radiofrequency detection equipment, radars, and jamming systems. Example companies in this space include Echodyne and Robin Radars, both providers of UAS detection equipment, as well D-Fend Solutions, which offers a suite of UAS detection and C-UAS hard and soft kill systems.
What’s Next
Capstone believes that increasing demand for UAS systems, combined with new, stringent domestic sourcing requirements, creates clear opportunities for investors interested in building out and maintaining domestic UAS and C-UAS supply chains.
Capstone will continue to follow the policy, regulatory, and federal funding drivers shaping the UAS and C-UAS industry, as well as emerging procurement trends at the federal, state, and local levels. We are well-positioned to help clients understand new FCC domestic sourcing and manufacturing requirements for UAS, new law enforcement C-UAS authorities, what these changes mean for individual businesses, and how best to take advantage of these new opportunities.
Read more from Capstone’s National Security Team:
Why Targeted Military Strikes on Iran Are Likely
How Trump’s National Security Strategy, NDAA Expand Private Investment Opportunities
The Coming US Boost to Defense and Europe’s Response
