The global drone industry is rapidly evolving into one of the most strategically important sectors in defense, surveillance, logistics and autonomous warfare.
According to a report from Mordor Intelligence, the global drone tech market is expected to witness a CAGR of 9.3% from 2026 to 2031. The convergence of drones with artificial intelligence (“AI”), cloud computing and edge processing is further driving adoption across verticals.
Ondas Inc. ONDS and Kratos Defense & Security Solutions KTOS both operate in the defense and unmanned systems domain, but from very different positions in terms of scale and maturity.
For investors seeking exposure to this theme, the key question remains: which stock offers the better opportunity right now?
Let us do a deep dive into the companies’ competitive dynamics to understand which is better positioned in the industry.
ONDS: Robust M&A Activity
Ondas, through rapid M&A, has built a multi-domain autonomy platform spanning Intelligence, Surveillance, Reconnaissance or ISR, c-UAS, loitering munitions/strike systems, unmanned ground vehicles and stratospheric sensing via World View acquisition.
DZYNE Technologies is the latest name in Ondas’ long list of acquisitions. The deal is valued at $875.8 million, comprising $200 million in cash and roughly $675 million in stock. DZYNE further expands Ondas’ reach across c-UAS, multi-domain ISR, precision strike and mission intelligence and autonomous systems. Both World View and DZYNE will operate within the company’s newly launched business division, Ondas Sentinel.
Following this development, Ondas now expects 2026 revenues to be at least $525 million from the previous forecast of $390 million. DZYNE is expected to contribute approximately $191 million in revenues in 2026 and $300 million in 2027.
This increase also reflects contributions from the Omnisys (adds AI-powered battlefield orchestration software to its autonomous defense systems portfolio) acquisition announced in May 2026. ONDS also announced the $125 million acquisition of Cyberhawk, a provider of drone-based infrastructure inspection and AI-powered asset intelligence in June 2026. In the first quarter, the company completed five acquisitions (World View, INDO Earth, Rotron Aerospace, Bird Aero and Mistral Inc).
Ondas Holdings Inc. Revenue (Quarterly)
Ondas Holdings Inc. revenue-quarterly | Ondas Holdings Inc. Quote
This expanding reach is complemented by a rapidly growing opportunity set, including a $4.3 billion active pipeline and more than $1.6 billion in strategic program potential, as highlighted by management on the first quarter earnings call. Back then, management had noted that the current pipeline represents more than $500 million in potential annualized revenue opportunity.
The pipeline spans multiple operational domains, including aerial security, ISR and unmanned ground vehicles. The company is also targeting large-scale defense initiatives such as the LASSO program, which alone represents a potential opportunity nearing $1 billion. As of June 22, 2026, Ondas noted that second-quarter-to-date order activity stood at more than $150 million.
However, Ondas’ story is not without challenges. Extensive M&A amplifies risks, as so many acquisitions in such a short period can create integration overload and execution risks, as achieving targets depends on timely integration and conversion of backlog into revenues.
Ondas faces rising operating costs as it invests in personnel and infrastructure capabilities to capture additional market opportunities. Amid rising costs, management expects adjusted EBITDA losses to stay elevated in the second quarter of 2026, likely marking the peak loss period. Beyond that, ONDS expects improvement throughout the year, driven by higher revenues, gross profit and operational scale. Notably, management pulled forward the OAS EBITDA profitability target to the first quarter of 2027 — roughly six months ahead of the earlier target.
KTOS: Established Player in the Drone Space
The broader demand backdrop strongly supports sustained growth in Kratos’ drone business. Unlike ONDS, Kratos’ unmanned systems business involves scaled defense programs and vertical integration. At the heart of this business lies the XQ-58A Valkyrie combat collaborative aircraft (“CCA”), which has secured a key role in the U.S. defense ecosystem.
The company generated roughly $20 million in first-quarter 2026 revenues, predominantly from the Valkyrie tactical drone. Quarterly Unmanned Systems revenues came in at $82.6 million from $63.1 million a year earlier. KTOS is scaling its Valkyrie production capacity, aiming to produce 40 units per year by early 2028.
Additionally, the company is actively participating in multiple next-gen drone and CCA programs, with strong positioning in future procurement phases. Earlier in the year, Northrop Grumman, a KTOS partner, received the $230 million MUX TACAIR CCA program award, which will be split equally with Kratos. For this program, Northrop will equip its mission systems with Kratos Valkyrie CCA, validating Valkyrie’s operational relevance. KTOS is also working with Airbus to deliver a UCCA offering (Valkyrie + Airbus’ MARS mission system) for the German Air Force.
Kratos Defense & Security Solutions, Inc. Revenue (Quarterly)
Kratos Defense & Security Solutions, Inc. revenue-quarterly | Kratos Defense & Security Solutions, Inc. Quote
The company is also expanding its presence in C-UAS, a category expected to ramp significantly over the next few years. It recently secured a $156 million “sole-source, single-award Indefinite Delivery/Indefinite Quantity (IDIQ) contract” from the U.S. Department of Energy's National Nuclear Security Administration, Office of Secure Transportation (“OST”). Under the contract terms, KTOS will be delivering C-UAS platforms designed to safeguard OST's critical National Security mission.
Beyond drones, it is also expanding into other high-growth areas, diversifying the revenue stream. Management noted that its core businesses — hypersonics, unmanned systems, drones, propulsion systems, space and satellite systems, air defense, missile systems, radar, C-UAS and microwave electronics — align directly with U.S. defense priorities and are supported under the planned $1.5 trillion 2027 national security budget. The vast scope of its business ensures benefits from multiple high-growth vectors rather than reliance on drones.
That said, near-term execution remains uneven. The unmanned segment is inherently lumpy, with management guiding to a sequential step-down in unmanned systems’ revenues in the second quarter of 2026 due to shipment timing and production mix. Aggressive expansion across multiple domains brings along operational and execution risks. Heavy dependence on government contracts and volatile macroeconomic conditions, including supply-chain disruptions, remains concerning.
Price Performance & Valuation for ONDS & KTOS
Year to date, both ONDS and KTOS are down 21.5% and 36.2%, respectively.
Image Source: Zacks Investment Research
In terms of the forward 12-month price-to-sales ratio, ONDS trades at 5.05X, higher than KTOS’ 4.6X.
Image Source: Zacks Investment Research
How Do Estimates Compare for ONDS & KTOS?
For ONDS, earnings estimates for the current year have decreased 28.6% over the past 60 days.
Image Source: Zacks Investment Research
For KTOS, earnings estimates for the current year have been marginally revised up over the same time frame.
Image Source: Zacks Investment Research
ONDS or KTOS: Which Is a Better Pick?
While ONDS carries a Zacks Rank #3 (Hold) at present, KTOS has a Zacks Rank #4 (Sell).
In terms of the Zacks Rank, ONDS appears to be a better pick at the moment.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Beyond Nvidia: AI's Second Wave Is Here
The AI revolution has already minted millionaires. But the stocks everyone knows about aren't likely to keep delivering the biggest profits. AI’s second wave is moving from infrastructure to implementation and these companies are at the forefront of this transition, positioned to become what Amazon and Google were to the internet era.
See Stocks Now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Kratos Defense & Security Solutions, Inc. (KTOS): Free Stock Analysis Report
Ondas Holdings Inc. (ONDS): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).