The Pentagon is running a new $1.1 billion drone contest — and it’s turning to startups instead of defense giants

For the Drone Dominance contest participants, the price is right, with a grand prize of $1.1 billion in defense contracts. That figure is part of a larger $54.6 billion the Defense Department is budgeting for drone warfare in its fiscal year 2027 budget request.

Currently, the Drone Dominance contest is in its Phase 2 Qualifier tier, with 49 drone developers fighting to claim a piece of the DOD’s $1.1 billion fixed-price orders expected to commence in 2027.

The Phase 2 component is expected to focus on identifying scalable payload systems for Group 1 drones weighing 20 pounds or less and is intended to complement the broader Drone Dominance effort.

The quest to identify future drone supernovas

Many of the companies competing for Pentagon contracts were founded by drone hobbyists, racers and entrepreneurs rather than traditional defense contractors. The new wave of military spending creates meaningful financial revenue for small businesses, industry experts say.

In an interview with Moneywise, James McDanolds, program chair, School of Uncrewed Technology at the Sonoran Desert Institute, said, “Drone Dominance Project already includes many startup firms, and some existing companies are either making this their main focus or pivoting to meet the much-needed demand.”

McDanolds said he’s seen a “very noticeable” increase in job postings for pilots/operators, test pilots, and product manager-style positions on places like LinkedIn after the program’s rollout. “It’s certainly creating opportunities for both those who have been in the industry already and those looking to enter the space in new positions and be part of the drone manufacturing movement that is now taking place.”

The biggest opportunities for companies competing in the Drone Dominance Program should be in the unmanned aircraft system (UAS) development side of the industry.

“There’s a growing commercial side of the drone industry where Unmanned aerial vehicles (UAVs) are used as tools for many commercial application sectors,” McDanolds noted.

There’s also an industry sector that develops, designs, tests, manufactures, and produces those tools.

“Much like Boeing and Airbus produce aircraft that are then used by the airlines and freight movers of the sky, those developers, component makers, production and manufacturing lines, flight testing, and engineering are needed,” McDanolds added.

Other industry analysts say the DOD could favor industry developers that are building lower-cost drones that have already demonstrated their value in military conflicts.

Armand Cucciniello III, director of strategic communications & AI at Blue Force Communications and a former senior U.S. Department of Defense official, agrees. “That’s absolutely the case,” he said in an interview with Moneywise.

“Iran reportedly produces its Shahed-type drones for anywhere from $20,000 to $50,000, which are reported to have killed U.S. service members and wreak havoc on more than a dozen bases across the Middle East.”

Cucciniello said the Drone Dominance initiative is aiming for drone price tags significantly lower than that.

“They’re basically demanding American drones be produced at roughly $3,700 apiece,” he noted. This is likely not a profitable program for major defense contractors but attractive for small, innovative and agile companies that can produce a quality product at scale, and at a fraction of the cost the big defense contractors would need to charge the government.”

The next generation of Wall Street success stories?

With billions of federal tax dollars pouring into the drone sector, substantial revenue is on the way for some of the Drone Dominance Program survivors, and that should attract attention among Wall Street market mavens.

Moneywise spoke with Michael Buscher, President of Heven AeroTech, a drone technology company. “Economically, injecting $54.6 billion of capital into the defense-tech sector stimulates domestic manufacturing, creates high-paying engineering jobs, and reduces our reliance on foreign supply chains,” he said.

Buscher said American taxpayers and potential investors should judge 2026-2027 DOD drone spending on price efficiency. That’s especially the case on whether the Pentagon is using funds to execute rapid, frequent, and sustainable tech iterations that drive costs down and capabilities up, rather than just buying more of the expensive, outdated hardware that already exists.

“A successful return on investment means shifting away from legacy, multi-decade procurement cycles that maximize contract value over battlefield relevance,” he noted. “It comes down to how the government executes these rapid procurements to keep pace with fast-evolving global threats.”

Consequently, investors will have to kick some tires on small Drone Domination Program winners who can deliver the goods on a Pentagon-approved budget. That shouldn’t be a problem, market experts say.

“Many times, we’ve seen how small players have won over larger customers who are shifting away from traditional vendors and toward new, agile, leaner teams,” said Andrew Bahlmann to Moneywise. Bahlmann is co-founder at Deal Leaders International.

This same model could occur with smaller drone companies who comprise the bulk of the Drone Domination contest. “Even hobbyists and founders can become serious defense vendors if they can grow their manufacturing base, develop compliance processes, and deliver on time,” Bahlmann said.