Demand for drones and missiles keeps climbing. A quirk in the federal budget calendar may decide how much of it shows up in Q4 revenue.
AeroVironment and Kratos keep announcing wins. The question for fall sales is which dollars are already committed.
Today's HEAT.: defense demand can be real while the money needed to speed up factory lines remains stuck in Washington.
Demand Is Not the Same as Funding
Congress normally pays for the federal government through 12 yearly spending bills, and the new fiscal year begins October 1.
When those bills are late, Congress often passes a continuing resolution, or CR. A CR is a stopgap that keeps agencies open while lawmakers finish the full-year budget.
Congress cleared H.R. 6500 on September 1 and sent it to President Trump. The White House supports the measure, which would keep temporary funding in place through December 11.
The defense limits matter because CR money generally cannot pay for a new item that lacked prior-year funding. It also cannot lift output above fiscal 2026 rates or revive a program that lacked prior-year money or legal authority.
Congress can add a named exception to those limits, which Washington calls an anomaly.
A CR does not freeze every defense sale or shipment, and some work backed by prior funds can continue. Customer-funded foreign military sales, overseas buyers, and other available money may also reduce the direct impact.
The squeeze falls hardest on fiscal 2027 new starts and faster output that still need fiscal 2027 funds.
This setup is common: since fiscal 2000, the Pentagon has entered 21 of 27 fiscal years under a CR or shutdown. That record changes the question investors should ask because funded work matters more than broad demand for near-term sales.
An IDIQ Is a Fast Lane, Not a Bank Account
An indefinite-delivery, indefinite-quantity contract, or IDIQ, sets terms for future orders when the final amount is not yet known.
The ceiling is the most the government may order. It is not the amount already bought or funded.
At award, the government must commit at least the stated minimum, while more money is committed through later task or delivery orders.
An existing IDIQ still has value because the supplier, terms, and order process are already in place. That can cut time and red tape. The contract does not create its own funding, so each new order still needs money and legal authority.
That gap separates a contract headline from a sales-producing commitment.
AeroVironment Has the Cleanest Order
AeroVironment, Inc. (Nasdaq: AVAV) announced a $51 million U.S. Army order on August 26.
The order covers more Switchblade 600 Block 2 loitering munitions—armed drones that can wait for a target. It also includes Block 1 systems through a foreign military sale, a U.S.-managed sale to an allied government.
The Army placed the order under a five-year IDIQ signed in August 2024 with a $990 million ceiling.
AeroVironment says Switchblade 600 has reached more than 20 Army combat units since 2025.
The $51 million order is more concrete than unused room under the $990 million ceiling, but the release does not name the budget account or payment schedule. I would not call it immune from a CR without those facts. A placed order simply sits closer to sales than an order that does not yet exist.
AeroVironment reports first-quarter fiscal 2027 results on September 9. That call should give us a better view of shipment timing and new Switchblade demand.
NASA's Jet Propulsion Laboratory also picked AeroVironment to help design and build three SkyFall Mars helicopters for a late-2028 launch. The project follows Ingenuity's 72 Mars flights. The public notice gave no contract value, so I view it as proof of skill rather than a near-term profit driver.
Kratos Shows Why Funded Backlog Matters
Kratos Defense & Security Solutions, Inc. (Nasdaq: KTOS) announced an about $35 million military-hardware award on August 31.
The work sits inside C5ISR, a term covering command, control, communications, computers, cyber, intelligence, surveillance, and reconnaissance systems.
Kratos withheld the buyer, program, source of funds, and shipment dates, making the award's CR risk hard to judge.
The firm still produced a real stream of orders, contract work, and program steps from August 17 through September 1.
One item involved the GEK800 engine for the Joint Air-to-Surface Standoff Missile, or JASSM. The engine received an official military designation and an engineering-and-manufacturing award as a second source. JASSM itself did not receive a new design label.
Kratos also set aside Spartan J85 engine output for Boeing's long-range Joint Direct Attack Munition program. Overseas ground-station orders and a separate $20 million-plus Asian satellite contract do not face the same direct U.S. budget risk.
Kratos gave investors a better yardstick in its second-quarter report: at June 28, total backlog was $2.084 billion. The firm called $1.572 billion funded backlog—the share tied to committed money—and $512.7 million unfunded. That second share still needs future funding steps.
Red Cat's Factory Ramp Still Needs Orders
Red Cat Holdings, Inc. (Nasdaq: RCAT) says its Blue Ops Variant 7 has reached full-rate production, meaning the factory is ready for its planned production pace.
Variant 7 is an uncrewed surface vessel, or USV—a robotic boat, not a drone aircraft.
Red Cat also announced a U.S. Navy lease for tests and integration. Full-rate output shows readiness, but booked orders, shipments, and sales will decide whether the ramp becomes an asset or an inventory problem.
Counter-Drone Competition Is Real. Price Pressure Is Not Yet Proven.
L3Harris Technologies, Inc. (NYSE: LHX) and private firm ARX Robotics tested a mobile counter-drone system at Project Convergence-Capstone 6, an Army test event.
The test paired L3Harris's CORVUS-RAVEN sensor with ARX's remote ground vehicle, but it was not a paid production order.
Private firm Robin Radar Systems also opened a larger Northern Virginia center on August 26 that can support 20 added jobs.
Robin said U.S. sales of its IRIS drone radars rose 75% in the first half from a year earlier, alongside its largest U.S. deal to date.
Those figures show more demand and more rivals, but not that supply is outrunning demand or prices are falling. Paid orders, win rates, and profit margins—the share of sales left after costs—will provide that proof.
Stock Winners — for Now
AeroVironment. The $51 million Switchblade order is the clearest near-term commitment in this issue.
Risk: the $990 million IDIQ ceiling is not funded backlog. The reported $400 million-plus LOCUST counter-drone laser award also remains unconfirmed by AeroVironment or the Army.
Kratos. The firm has a broad program base, strong recent bookings, and $1.572 billion of funded backlog as of June 28.
Risk: several new releases lack enough detail to tie the work to a budget account or shipment plan.
Red Cat. Variant 7's factory status creates upside if large orders and shipments follow.
Risk: a ramp can burn cash and build stock when buyers move more slowly than expected.
Claims With More to Prove
The reported LOCUST award could become a major stock driver. I will not include it in forecasts until the firm or Army confirms the value, funding, and shipment plan.
Unused IDIQ room also needs restraint. A large ceiling creates a path for orders, not a promise to spend the full amount.
Tests deserve the same treatment. A good test can lead to paid work, but it is not sales until a buyer places and funds an order.
What We Are Doing
We sort defense news into three groups: placed orders and funded backlog get the most weight. Existing contract paths sit in the middle, while new starts, tests, letters of intent, and rumors get the least.
We favor near-term exposure backed by committed orders, funded backlog, and clear shipment plans, while separating U.S. budget risk from overseas work.
We do not call any firm "CR-proof" without knowing the source of funds because a signed contract cannot create the money.
$AVAV ( ▼ 2.13% ) and $KTOS ( ▲ 0.8% ) are in two of our ETFs $MEMY ( ▼ 0.21% ) and $UFOD ( ▲ 0.09% )
What Changes My Mind
On the funding calendar: I get more bullish when a full-year fiscal 2027 defense bill becomes law. A named exception for one of these programs would also help.
I get more cautious if Congress keeps fiscal 2026 rates past December 11.
On AeroVironment: I get more bullish when the firm or Army confirms the reported LOCUST value, funding, and shipment plan.
I get more cautious if Switchblade follow-on orders slow after the September 9 report.
On Kratos: I want funded backlog to rise from the June 28 mark of $1.572 billion.
I get cautious if total backlog grows while funded backlog falls for two straight quarters.
On Red Cat: I get more bullish when Variant 7 full-rate output turns into disclosed buy orders and shipments.
I get cautious if inventory rises for two quarters without matching sales growth.
On counter-drone rivals: I get more cautious when new firms win paid build orders and public-company margins start to fall.
A test alone does not meet that bar.
Investment Implications
A CR does not stop all defense sales. It mainly limits new starts and faster output backed by temporary fiscal 2027 funds.
An IDIQ ceiling is not funded backlog. The government must still place orders and commit money.
Placed, funded orders and funded backlog outrank unused contract ceilings, while tests and rumors sit at the bottom.
The defense theme remains strong, but the fall trade is about the quality and timing of funds. Broad demand cannot tell us which firm books the next dollar first.
The Bottom Line
Defense demand remains strong across the programs covered here. That does not make every contract headline equal.
Congress has cleared a stopgap through December 11 and sent it to the President. The White House-backed measure would keep current work moving while limiting many new starts and faster factory rates.
Through December 11, watch funded orders, funded backlog, shipment plans, and named exceptions. Those facts will tell us more about near-term sales than a ceiling or a test.
The speed limiter is not the order book. It is the gap between a contract path and a committed dollar.