Drone stocks surge on report Pentagon considering stakes in the industry

Drone stocks surged Thursday on a report the Trump administration is in talks to fund several companies including one in which Donald Trump Jr. is a shareholder.

The Pentagon has held months of discussions with a group of drone companies about potential funding deals, people familiar with the matter told The Wall Street Journal. The deals could include equity stakes that give the federal government some ownership, the Journal reported.

Shares of Unusual Machines surged more than 65% after the Journal reported it is one of the companies in talks with the Pentagon. A deal would likely invite congressional scrutiny and raise conflict of interest concerns due to the company’s relationship with Donald Trump Jr. The eldest son of President Donald Trump is a shareholder and advisory board member.

Shares of drone makers Kratos Defense & Security and AeroVironment jumped 15% and 18%, respectively. The Drone & Modern Warfare ETF (JEDI) rallied 12%.

If they were to happen, the Pentagon deals could aim to ramp up domestic production and lower the costs of drones, weapons that are viewed as critical in modern warfare.

“While not official, we believe this type of funding support makes particular sense for Unusual Machines given the critical and supply-constrained nature of drone components and domestic manufacturing capabilities,” Needham analyst Austin Bohlig told clients in a Thursday note.

The Trump administration has taken direct equity stakes in companies on a scale unseen in the U.S. outside times of economic crisis, war or other calamities. The administration has focused mostly on industries viewed as important to U.S. national defense such a critical minerals and semiconductors.

CNBC has reached out to the Pentagon for comment.