The recent escalation between U.S.-Israeli forces and Iran has pushed the Middle East closer to a broader regional conflict. With missiles lighting up the night skies and air raid sirens echoing across the region, drones have emerged as a new protagonist on the modern battlefield.

Beyond the traditional exchange of ballistic fire, this conflict is being defined by unmanned systems. Drones are playing a critical and decisive role, from long-range surveillance to precision strikes, putting a sharp spotlight on the companies manufacturing them. 

As defense ministries rush to replenish and expand their drone and counter drone arsenals, drone manufacturers, and the exchange-traded funds (ETFs) that hold them, are poised to capitalize on a powerful, conflict driven demand surge that can translate into formidable profit growth. 

For investors, this raises an important question: if the battlefield is being redefined by drones rather than just missiles and manned jets, should portfolio positioning also shift beyond the traditional “big defense prime” playbook toward the broader ecosystem of drone-centric stocks and related funds? The following discussion seeks to answer this question.

Drones Reshaping Warfare

The current conflict in the Middle East has become a live-fire showcase for specific unmanned aerial vehicles (UAVs), driving immediate demand and future orders for companies manufacturing them. 

For instance, the Israeli Air Force has relied heavily on its fleet of Elbit Systems (ESLT Quick QuoteESLT - Free Report) Hermes 900 UAVs and Israel Aerospace Industries Eitan (Heron TP) drones for deep intelligence and strike missions over Iran in the latest escalation. 

On the other hand, recent reports confirming that more than a dozen unmanned MQ-9 Reaper drones have been lost in combat during operations against Iran (as published by ABC News) highlight the critical role the Reaper, manufactured by General Atomics, has played in the recent Middle East conflict.

Other prominent drone manufacturers like AeroVironment (AVAV Quick QuoteAVAV - Free Report) , Ondas (ONDS Quick QuoteONDS - Free Report) and Kratos Defense (KTOS Quick QuoteKTOS - Free Report) are witnessing increased demand for their unmanned systems in the form of solid order flows, indicating how the conflict-driven demand is translating into real revenue-generating momentum for these companies.

In the first week of March 2026, ONDS received orders totaling approximately $6 million for counter-drone systems from defense and homeland security customers in the Middle East and other regions. In the same week, KTOS received a production contract worth approximately $7 million for a Counter-unmanned aerial system from a classified customer.

At the end of February, AVAV won a $186 million delivery order for two types of its Switchblade family of loitering munitions, a type of self-destructive UAV, from the U.S. Army.

The Strategic Case for Drone ETFs

Against the current geopolitical backdrop, it is clear that the companies mentioned above currently represent a "pure-play" exposure to drone warfare that traditional defense giants often lack.

For investors, picking a single winner in a rapidly evolving tech-driven war might be risky, as individual stocks can be highly volatile. For instance, while AeroVironment recently jumped 17% in a single week, smaller players can face execution hurdles. 

This is where thematic ETFs provide a strategic advantage. By investing in a basket of companies, you gain diversified exposure to the entire combat-driven ecosystem — from airframe manufacturers like Elbit to sensor specialists like NextVision — without betting on a single firm's quarterly performance. 

Therefore, investors seeking to capitalize on the momentum driven by drone-focused warfare may consider the following ETFs:

Defiance Drone and Modern Warfare ETF (JEDI Quick QuoteJEDI - Free Report)

This fund, with net assets worth $90.2 million, offers exposure to 28 companies advancing next-generation defense technologies, including military drones, AI-driven warfare and defense IT, unmanned systems, electronic and communication warfare, ISR, space warfare/satellites/missile solutions, military cybersecurity and military robotics. ESLT holds the first position in this fund, with 8.30% weightage, while KTOS holds the seventh position, with 6.04% weightage. 

JEDI has gained 7.4% over the past year and 2.5% since Feb. 28, 2026, when the Middle East conflict began. The fund charges 69 basis points (bps) as fees.

REX Drone ETF (DRNZ Quick QuoteDRNZ - Free Report)

This fund, with net assets worth $82.9 million, offers exposure to 43 companies that derive at least 20% of revenues from drones or enabling technologies, or defense firms with designated UAV divisions. ONDS holds the first position in this fund, with 11.8% weightage, while AVAV holds the third position, with 8.11% weightage. 

DRNZ has gained 14.2% over the past year and 7.9% since Feb. 28, 2026. The fund charges 65 bps as fees.

Defiance 2X Daily Long Pure Drone and Aerial Automation ETF (DRNL Quick QuoteDRNL - Free Report)

This fund, with net assets worth $1.1 million, offers exposure to 35 companies that derive a majority of their revenues from drone and aerial automation-related activities, including unmanned aerial vehicle (UAV) production, AI-driven piloting systems, aerial data and inspection services, defense drone platforms and advanced air mobility solutions. ONDS holds the third position in this fund, with 18.9% weightage, while KTOS holds the fourth position, with 18.7% weightage. AVAV holds the ninth position in this fund, with 10.9% weightage. 

DRNL has gained 6.7% over the past year as well as since Feb. 28, 2026. The fund charges 131 bps as fees.