President Donald Trump just gave defense investors whiplash. On Wednesday, he threatened major defense contractors with a complete ban on buybacks and dividends if they don't fix their supply chain problems, then hours later proposed pumping the 2027 military budget up by 50%. If you're confused about whether that's bullish or bearish, well, it depends on which defense stocks you own.

The big winners? Drone manufacturers and autonomous systems companies, which surged as investors interpreted the chaos as a sign that Washington wants to bypass the legacy defense giants and fund faster, more innovative suppliers.

Trump Takes Aim at the Defense Giants

In a flurry of social media posts Wednesday, Trump unleashed on the traditional defense establishment, calling out the slow pace of military manufacturing while companies pour billions into shareholder returns instead of fixing years-long production backlogs.

The Ultimatum: Any defense contractor failing to meet strict production and maintenance benchmarks will be banned from paying dividends or buying back shares. Trump wants the money redirected into what he called "NEW and MODERN Production Plants."

Executive Pay Caps: He also floated a $5 million cap on executive compensation for underperforming firms, arguing that leadership shouldn't get rich while delivery schedules slip.

Market Reaction: Shares of Lockheed Martin Corp. (LMT), Northrop Grumman Corp. (NOC), RTX Corp. (RTX) and General Dynamics Corp. (GD) all dropped between 4% and 6% following the posts. They later recovered some ground after Trump's budget expansion proposal hit the wires, but the message was clear: the old guard is on notice.

A $1.5 Trillion Military Budget by 2027

After rattling the defense establishment, Trump pivoted to the carrot: a massive budget increase. He announced plans to boost military spending to $1.5 trillion by 2027, up from the current $1 trillion trajectory.

"I have determined that, for the Good of our Country, especially in these very troubled and dangerous times, our Military Budget for the year 2027 should not be $1 Trillion Dollars, but rather $1.5 Trillion Dollars," Trump said.

That's a lot of new money looking for a home, and investors immediately started betting on where it might land.

Drone Stocks Take Flight

Stocks of high-growth drone and autonomous systems providers absolutely ripped higher as investors connected the dots: Trump wants modern, fast-moving contractors who can scale production quickly, not bureaucratic behemoths weighed down by dividend obligations.

In the 24 hours following Trump's posts, these pure-play drone stocks surged by double digits:

The market is reading this loud and clear: the Trump administration wants a decentralized, domestically-focused military manufacturing base that can churn out modern weapons systems at scale and at speed.

For companies like Red Cat, Kratos and AeroVironment—which operate without the bureaucratic overhead and dividend commitments of the legacy primes—the path to massive Pentagon contracts just got a whole lot clearer. They're nimble, they're modern, and they don't have shareholders demanding quarterly payouts while fighter jets sit unfinished on factory floors.

Whether Trump can actually follow through on these threats remains to be seen, but the market is betting that the future of defense spending looks a lot more like autonomous drones and a lot less like legacy contractors with entrenched relationships and slow production lines.