The eye-popping market debut of a

tiny drone software company

this week reveals a newfound

investor appetite for stocks

that fall at the intersection of

geopolitics

, rising

spending on defence technology

and

artificial intelligence

.

Shares of Austin, Texas-based Swarmer Inc., whose AI platform is used to deploy and coordinate drone swarms, soared nearly 1,000 per cent in the first three trading sessions after its initial public offering. Market watchers said the rally reflects how the

war in Iran

has swiftly reshaped the outlook for the

defence industry

as governments around the world rush to retool their militaries to combat a new generation of threats.

“Whether the geopolitical tensions remain extremely high or not, military spending is going to increase around the globe,” said Matt Maley, chief market strategist at Miller Tabak + Co. “The defence sector is attracting a lot of money in general, but the stocks that are associated the most with AI technology are gaining meme-like attention.”

Swarmer’s rally indeed has echoes of the violent swings associated with so-called meme stocks, where a combination of a relatively small number of tradeable shares, the company’s ability to capture the interest of retail investors with popular themes and strong social-media momentum can lead to massive spikes and subsequent crashes.

The company generated just US$309,920 in revenue for the year ended December 31, 2025, a roughly six per cent decline from the same period a year earlier. Its profitability also worsened over that stretch, with the company reporting a loss of about US$8.5 million, more than four times larger than its net loss in 2024. Shares of the company were trading down five per cent on Friday, still up about 900 per cent from the IPO price.

Drones have drawn particular attention because they are being used heavily by Iran, Israel and the United States in the current war, echoing the pattern seen since Russia’s 2022 invasion of Ukraine. That has highlighted a shift in warfare toward lower-cost, often autonomous and unmanned systems that rely heavily on software. Even though U.S. military spending significantly dwarfs that of any other country, Iran has still been able to inflict damage in the current war by using drones to hit several Gulf nations, spiking global energy prices and sending regional countries scrambling for more air defence.

“Military experts are drawing the conclusion that small drones are likely the best defence against drone attacks,” said Michael O’Rourke, chief market strategist at JonesTrading.

This week, the Pentagon said it is

planning to mass produce

one-way attack drones created by reverse-engineering Iran’s cheap and deadly Shahed system. The news sent shares of drone makers AeroVironment Inc., Unusual Machines Inc. and Duke Robotics Corp. jumping on Tuesday.

A Bloomberg global defence index is up 16 per cent in 2026, compared with a 3.5 per cent decline for the S&P 500. U.S. military spending in the first six days of hostilities in the Middle East totalled US$11.3 billion, according to the Pentagon, which has asked Congress for an additional US$200 billion to pay for the war against Iran.

“I think it’s fair to say that everybody around the world now understands that warfare is now about the economics of warfare,” said Benjamin Wolff, chief executive officer of Palladyne AI Corp. “A lot of low cost weapons can overpower exquisite, expensive low volume weapons, and we’re seeing that in spades obviously for several years in Ukraine. And we’re seeing it now in a little different context in Iran.”

Palladyne’s software gives drones AI autonomy, allowing them to navigate, detect targets and coordinate with other drones without constant human control.

In the stock market, that shift has led investors to reassess how they value defence companies. Once viewed as a sector that tends to hold steady in periods of economic or market stress, the group is increasingly attracting higher-growth valuations as smaller companies challenge established contractors such as RTX Corp., Northrop Grumman Corp. and Lockheed Martin Corp.

Drone maker Airo Group Holdings Inc. rose 140 per cent in its public debut last June, briefly pushing its market value to about US$1 billion. That followed an 82 per cent first-day jump for space and defence firm Voyager Technologies Inc. Those stocks also got a lift from the conflicts in Ukraine and the Middle East, which highlighted the cost-effectiveness of drones in warfare.

Still, some investors cautioned that Swarmer’s gains could fade quickly. Such swings are not unusual. Sharp rallies in the first days of trading can be followed by steep declines. Newsmax Inc., which had an even bigger market debut about a year ago, rose more than 2,000 per cent in its first two trading days, only to lose nearly 80 per cent of its value on the third day.

That stock now trades below its US$10 IPO price, at about US$7, far below the high of US$233 reached on the second day of trading. Airo’s current market capitalization is about US$300 million.

However, Miller Tabak’s Maley said that even if the initial enthusiasm around Swarmer fades, the company’s underlying business may offer more support than other meme stocks had in the past.

The coming weeks and months will likely determine which path Swarmer takes.

“Whether or not they have legitimately good technology or would simply be opportunistic trend chasers will be up to the market to decide,” said Steve Sosnick, chief strategist at Interactive Brokers.

Bloomberg.com

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