Dear Reader,
This is Dylan Jovine with Behind the Markets.
Happy Tuesday. Today is Tuesday, June 30th — last day of the month.
Yesterday I talked about problems we’ve had in the defense sector. Today I want to talk about why I'm actually excited.
Because the butt-kicking we've taken in defense over the past eight months has done something interesting. It's set the table for what I think are some of the best opportunities in this market over the next year.
Fighting the Last War
We have the strongest military in the world. Nobody disputes that. But a lot of it is built for 20th century warfare. And you've seen this play out in Ukraine and in Iran — cheap $10,000 to $15,000 drones causing massive problems for multimillion-dollar weapons platforms. It costs a fortune to knock out a cheap drone. And a cheap drone can take out an expensive system in a heartbeat.
This is not news to Behind the Markets members. We've been talking about this since 2020. War Games in 2022. AI Ukraine in 2023. You've watched everything we laid out years ago play out in real time.
The problem was Washington didn't have the political will to change direction. It takes a lot of pain to turn an institution the size of the U.S. government.
Millions of people, handlers, contractors, bureaucrats — it moves slowly.
And in the meantime, China was running a very deliberate strategy: flood the drone market at a loss, back their manufacturers with government money, blow out American competitors, and get us addicted to their technology. Classic Trojan horse industrial policy. You have to give them credit. These are serious people.
What Changed Six Months Ago
In December, the government banned Chinese drones — effectively kicking DJI, which owned 70% of the market, out of the American market. That was a massive signal to domestic manufacturers. You can actually come in here and compete.
Then came the Defense Autonomous Warfare Group. DAWG.
I like the name.
In April, Secretary Hegseth told the House Armed Services Committee that the Pentagon is standing up a sub-unified command for autonomous warfare. That is a very big deal. A sub-unified command is not a pilot program. It's not a task force. It's a permanent feature of our force structure — on the same plane as special operations worldwide. That tells every manufacturer in this space: this is here to stay. Invest.
And the budget reflects it. The autonomous warfare budget is set to go from $225 million in fiscal '26 to $55 billion in fiscal '27.
That's 24,000%.
Former CIA Director David Petraeus called DAWG "the largest single commitment to autonomous warfare in history."
Where This Leaves Us
The stocks are cheap. The money is being cemented into the permanent structure of the U.S. military. Wall Street spent the last eight months rotating out of defense and into AI while waiting for clarity. The clarity is here.
We own some of the right names already — which is exactly why I haven't recommended selling them even as they've pulled back. I've been watching all of this happen and waiting for the moment to start getting louder about it.
That moment is now.
We're putting together a report on our top picks for the autonomous warfare build-out — companies with pole position on contracts, including some names we haven't talked about before. I'll have that for you when I'm back.
In the meantime, make sure you are invested in the names already in our portfolio.
After this recent pullback, now is a great time to get in.
This is shaping up to be one of the biggest opportunities of the back half of this year.
Have a wonderful Tuesday. I'll see you next month.
“The Buck Stops Here,”
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Written by Dylan Jovine