The global defense landscape is rapidly evolving, driven by intensifying geopolitical tensions and technological breakthroughs. At the forefront of this evolution is the rapid penetration of unmanned aerial systems (UAS) or military drones, a space where the Gabelli Commercial Aerospace & Defense ETF GCAD is well-positioned for long-term expansion.
According to Tony Bancroft, portfolio manager of GCAD, the drone industry is not merely evolving; it is poised to redefine modern warfare over the next decade, where the military drone industry will soar to new heights as Advanced AI and swarm technology will revolutionize warfare, enabling precise, autonomous missions.
The boom in military drone production cannot be understood in isolation from the current turbulent global environment. The Russia-Ukraine war has demonstrated the combat utility of drones in real-world operations — from surveillance to precision strikes — while also revealing the weaknesses of traditional military assets. At the same time, escalating tensions in the Indo-Pacific region, especially with China making maritime and territorial claims, have compelled nations such as India, Japan and Australia to expedite defense modernization initiatives, including the use of unmanned systems.
In the Middle East, asymmetric warfare and ongoing regional instability have also spurred demand for surveillance and tactical drone capabilities. With drone technologies now an integral part of both deterrence and rapid-response strategies, worldwide military drone expenditures are set to hit $24 billion by 2030, Bancroft said.
Six Pillars Of Drone-Driven Defense Transformation
Bancroft identifies six major breakthroughs that will drive the drone industry in the next decade: “1. Advanced Autonomy and AI, 2. Battery and Propulsion Innovations, 3. Regulatory Environment allowing for more drone ops, 4. Urban Air Mobility (UAM) eVTOL, 5. 5G and Connectivity, and 6. Cost Reduction and Scalability,” said Bancroft.
- Next-generation autonomy and AI, supporting real-time decision-making and mission completion with no human interaction.
- Emerging battery and propulsion technologies, allowing increased operating range and longevity.
- Evolving regulatory schemes, especially for airspace control, that support the increased widespread use of drones.
- Development in UAM through eVTOLs with dual civilian and military use.
- Rapid, low-latency communications using 5G and satellite network technology.
- Cost-effectiveness and scalability, making large-scale drone deployment a practical and economically sustainable reality.
These innovations would serve as the afterburners to accelerate growth in military drones.
The March Toward Autonomy, Swarm Warfare
Semi-autonomous swarms of drones are already in use in some situations, with limited battlefield applications anticipated in the next few years. But full autonomy, AI-directed swarms are still dependent on solving critical technical hurdles, including real-time communication in hostile environments and trustworthy AI decision-making in combat.
Autonomy, as groundbreaking as it is, also brings new dangers. Cybersecurity has become a top priority.
“Advanced autonomy heightens risks of cyberattacks with more entry points for hackers to exploit vulnerabilities,” Bancroft said. “We will require AI-driven threat detection and resilient architectures to ensure secure autonomous operations.”
Hypersonic and Stealth Drones: The Next Technological Frontier
Swarm intelligence aside, the future generation of drones will be hypersonic, stealthy and much deadlier. Hypersonic drones are being worked on, but are still constrained by physics-constrained engineering challenges.
“Extreme heat at hypersonic speeds requires advanced materials to prevent structural failure. Balancing radar-evading stealth with aerodynamic demands remains technically challenging,” Bancroft said. “Stable, efficient engines for sustained hypersonic flight are still under development.”
As UAS continues to grow more sophisticated, they are poised to assume high-risk missions from manned systems.
“Stealthy, hypersonic drones will likely dominate due to their speed, survivability, and ability to operate in high-risk environments without risking human lives,” Bancroft stated. “Manned aircraft will shift toward roles like command-and-control or specialized missions, leveraging human decision-making in complex scenarios.”
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Changing Defense Doctrine and Counter-Drones
The old defense doctrine is changing with this transition. Land operations are progressively supplemented — if not replaced — by network-centric warfare, with drones incorporated into live data and target systems.
“Defense strategies now prioritize integrated drone swarms and AI-driven systems for real-time surveillance, targeting, and strikes, reducing reliance on ground forces,” Bancroft said. “Traditional strategies are incorporating advanced anti-drone technologies, like electronic warfare and laser systems, to counter enemy UAV threats. Just today, I read an article about the Marine Corps looking to incorporate a counter-drone weapon to their Amphibious Combat Vehicle (ACV).”
Nations are also increasing their investments in drones. The U.S. is still the leader, but China and India are quickly expanding their programs.
“India is becoming one of the fastest-expanding markets for military drones,” Bancroft added. The ongoing tensions boiling over between India and Pakistan might fuel demand even more.
GCAD’s Diversification Within The Drone Landscape
GCAD’s portfolio accurately reflects these newer trends. At least 80% of its assets are dedicated to income-bearing aerospace and defense equities that, in turn, are primarily positioned at the vanguard of drone and anti-drone innovations. According to Bancroft, these firms are at the forefront of secular growth in unmanned defense platforms.
Palantir Technologies PLTR, which offers AI-driven threat detection and battlefield analytics, just won a $150 billion contract for the “Golden Dome” missile defense system, noted Bancroft.
Anduril Industries, an emerging defense technology company, is building autonomous systems under a $99 million U.S. Department of Defense contract, and has teamed with Palantir.
Textron Inc TXT, through its Aerosonde UAS, and Honeywell International Inc HON, a provider of propulsion and sensor systems, are both poised for expansion as demand increases for advanced aviation systems, Bancroft said.
Looking Ahead To 2035
Bancroft describes the battlefield in 2035 as one that is controlled by autonomous swarms operating across air, land, sea and cyber domains, backed by AI-driven command systems and sophisticated counter-drone energy weapons.
“Drone warfare in 2035 features vast, autonomous swarms with advanced AI, coordinating complex attacks with minimal human input, unlike today’s human-piloted or semi-autonomous drones,” he said.
Conclusion
Increased demand for military drones, driven by geopolitical volatility and technological breakthroughs, is remaking the world defense industry. Through its stakes in leaders at the forefront of these innovations, GCAD is positioning itself in the next generation of defense technology — one where autonomy, velocity and strategic information come before manpower alone.
While the military is shifting from boots on the ground to bots in the air, GCAD seems poised to ride and profit from this tectonic shift in global defense.
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