China’s Latest Move Sends U.S. Drone Stocks Soaring
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| By Sean Brodrick |
The military drone industry isn’t waiting for liftoff — it’s already airborne and accelerating.
Global defense budgets are surging …
Autonomous systems are reshaping battlefield strategy …
And the U.S. Department of Defense is pouring billions into programs that would be absolutely terrifying if they weren’t on our side.
Over the weekend, Treasury Secretary Scott Bessent announced that China will ease its rare earth export restrictions.
The result: Cheaper, more predictable supply chains for the magnets and motors that make U.S. drones fly.
This is adding a tailwind to a global market that is already soaring at a compound annual growth rate of 13.9%.
The global military drone market is projected to nearly double from $40.5 billion in 2024 to $87.6 billion by 2030, a powerful 13.9% CAGR.
This is an acceleration of the trend I talked about in an Oct. 1 article.
At that time, the global military drone market was forecast to grow at an 11% CAGR.
North America accounts for roughly 39% of total revenue, with the U.S. being more than 85% of that.
Here’s why cheaper rare earths prices matter for drones …
Rare Earth Relief Hits the Sweet Spot
When China clamped down on rare earth exports in 2025, prices for key materials — neodymium, dysprosium and terbium — spiked 30% to 50% nearly overnight.
The resulting bottleneck hit drone makers right in the motor assembly line, forcing delays, redesigns and spiraling costs.
China refines roughly 80% to 90% percent of the world’s rare earths and produces nearly all sintered magnets used in drone propulsion and guidance systems.
Even modest relaxation of export controls eases cost pressures across the board.
That lowers input prices, stabilizes production schedules and gives manufacturers room to breathe while U.S. magnet facilities in Oklahoma and Texas ramp up.
Made in America — Mostly
U.S. military drones must meet strict domestic sourcing rules under the Defense Federal Acquisition Regulation Supplement (DFARS 225.7018) and NDAA § 848, which restrict components from “covered foreign entities” such as China for critical systems.
However, rare earth magnets are currently exempt from full domestic content requirements as long as they are substantially transformed within the U.S. (for example, magnetized, machined or integrated into assemblies domestically).
That loophole has kept American defense drone builders supplied — but at the mercy of Beijing’s export policy.
If China loosens controls, U.S. producers benefit immediately, even as long-term reshoring efforts by several companies continue.
If Chinese export controls are rolled back — or even if the licensing process becomes less restrictive — several positive developments can be expected:
- Lower and more predictable input costs, enhancing margins and competitiveness for U.S. and allied drone makers.
- Reduced risk of production shutdowns or forced redesigns, supporting steady inventory and delivery schedules.
- Less inflationary pressure on the whole drone supply chain, benefiting not just military and large commercial producers, but also small and medium-sized manufacturers reliant on imported components.
- Improved investor confidence, as supply disruptions and cost volatility have clouded the outlook for drone stocks all year.
Investor Takeaway
Growth is led by fixed-wing combat drones and AI-driven ISR (Intelligence, Surveillance, Reconnaissance) platforms.
Programs like the Collaborative Combat Aircraft (CCA) initiative will pair autonomous drones with manned fighters — a huge force multiplier for next-generation warfare.
Bessent’s signal from Treasury effectively removes a choke point in one of the fastest-expanding corners of the defense sector.
Rare earth relief lowers the cost curve for everything from small quad-rotor reconnaissance craft to long-range jet-powered UAVs.
Add soaring defense budgets, AI-enhanced targeting and ongoing Pentagon procurement momentum, and you have an industry whose growth trajectory just went vertical.
So how can you play it?
In my Oct. 1 article, I recommended the SPDR S&P Aerospace & Defense ETF (XAR).
It holds some of the top drone stocks that are doing so well for us in Supercycle Investor.
And since that recommendation, XAR is up nearly 8% — more than DOUBLE the performance of the S&P 500 — nearly 3% — over the same time.
Now, let’s look at a DAILY chart of the XAR …
You can see the XAR consolidated for weeks, and now it is breaking out.
As I said earlier, this news on rare earths is adding a tailwind to high-flying drone stocks.
That tailwind could help your portfolio if you jump on this opportunity.
All the best,
Sean
P.S. Yesterday, I joined my fellow analysts in an unprecedented challenge.
We were treated to a strategy that can give you income from places you normally can’t find any — gold, crypto, private equity and tech stocks.
