I’ve been a trader and investor for 44 years. I left Wall Street long ago—-once I understood that their obsolete advice is designed to profit them, not you.
Today, my firm manages around $5 billion in ETFs, and I don’t answer to anybody. I tell the truth because trying to fool investors doesn’t help them, or me.
In Daily H.E.A.T. , I show you how to Hedge against disaster, find your Edge, exploit Asymmetric opportunities, and ride major Themes before Wall Street catches on.
Table of Contents
H.E.A.T.
Tampa, Florida. May 19, 2026.
The $1 million missile is not obsolete. It has a $5 problem.
At SOF Week 2026, the U.S. military made its new procurement math explicit. USSOCOM Acquisition Executive Melissa Johnson told a room of defense contractors and investors that using million-dollar interceptors against drones that cost tens of thousands of dollars does not scale. The United States still has the most capable weapons on earth. During a single week of the recent Middle East conflict, approximately 1,400 Iranian one-way attack drones were launched into the UAE. At $1M per AIM-9X and $4M per Patriot intercept, the arithmetic falls apart at volume. Patriot, AIM-9X, SM-6, and THAAD are not going away. They are being forced into a narrower job — the wrong economic answer for mass drone defense.
That is the binding constraint. Not capability. Not range. Not lethality. Cost-per-kill at volume. Whoever can deliver mass, modularity, and effect at a price point the adversary cannot exhaust — that is where the next defense supercycle goes.
Wall Street still files AeroVironment (AVAV) as an aerospace-and-defense mid-cap, Kratos Defense (KTOS) as a niche defense supplier, and Red Cat Holdings (RCAT) as a speculative drone small-cap. Those labels miss the point. These three companies sit directly in the procurement stream that cost-per-kill economics just created. The sector classifications are masking the size of the opportunity.
SOF Week is the leading indicator. USSOCOM absorbs procurement risk the larger services cannot. Successful capabilities propagate across the Joint Force. The reset that was described in Tampa in May becomes the budget line items in Washington by FY27. What follows is the investment map for that transition.
THE NUMBERS THAT MATTER
METRIC | VALUE | CONTEXT | IMPLICATION |
FY27 Defense Budget | ~$1.5T proposed | Request, not enacted; faces political and process risk | ~42% increase over current funding; largest proposed supply-demand imbalance since Reagan buildup |
AIM-9X vs. Adversary Attack Drone | $1M vs. $10K–$100K | 10x–100x cost asymmetry against mass drone attacks | Drives entire procurement reset toward attritable, low-cost systems |
LOCUST X3 Cost-Per-Shot | ~$3–$5 | vs. $4M Patriot intercept (Huntsville Business Journal, Mar. 2026) | Changes the economic equation for mass drone defense at scale |
KTOS MACH-TB 2.0 Contract | Up to $1.45B (five-year OTA) | If all options exercised; from internally-funded R&D to contract in approximately 26 months | Speed of execution is itself a competitive moat over traditional 5-7 year procurement cycles |
DAWG / Autonomy Funding | ~$54.6B FY27 R&D ask | $1B base + $53.6B reconciliation; broader UAV/USV procurement signals may approach ~$74B depending on line aggregation | Made-in-USA NDAA mandate applies; sets structural floor for domestic suppliers |
RCAT BlueOps Variant 7 ASP | ~$700K / unit | 800 nmi range, ~1,800 lb payload; Valdosta, GA facility now operational | Maritime procurement cycle opening alongside air; consensus models include essentially zero maritime revenue |
THE BOTTLENECK HAS MIGRATED AGAIN
Regular readers of this letter track the bottleneck migration — the binding constraint that determines where rent accrues as a technology buildout matures. In AI infrastructure, we have documented the constraint shifting from compute to memory, memory to networking, networking to power, and now power to thermal density at the package level.
Defense has its own version of this arc. For two decades, the binding constraint was technological superiority. The F-35, DDG-51, and M1A2 franchise made strategic sense when adversaries could not match our platform capability. But adversaries have closed enough of that gap that the new vulnerability is cost asymmetry at volume. They field drones at $50,000 a unit. We have been shooting them down with missiles that cost twenty times more per shot. That equation does not balance at the scale of a peer conflict.
The procurement architecture is being rebuilt around whoever can flip that equation. The DoD's open-architecture mandate — implemented five years ago but now being enforced at the buying desk — eliminates the old vendor-lock model that made traditional primes so defensible in the prior cycle. Going forward, closed platforms lose share at the margin. Open, modular, software-defined systems win it.
Four things changed at SOF Week 2026 that make the investment case more urgent today than three months ago:
1. The procurement mandate is no longer theoretical. The Army's LASSO prototype agreement to AVAV for Switchblade 400, the KTOS MACH-TB 2.0 OTA, and the active Indo-PACOM USV pipeline demonstrate the shift is being operationalized. These are executed contracts and active RFPs.
2. The FY27 proposed budget is the real catalyst. A ~$1.5 trillion proposed defense budget — roughly a 42% increase over current funding levels — represents the largest proposed supply-demand imbalance since the Reagan buildup. Even heavily discounted for congressional process risk, the dollar scale is transformational.
3. Maritime is becoming the second front. The entire drone buildout narrative has focused on air. RCAT's BlueOps Variant 7 USV and the active Indo-PACOM RFP for approximately 1,300 vessels reveal maritime procurement is accelerating on a compressed timeline. The companies already positioned in unmanned air are best situated to capture it.
4. Speed is now a structural moat. Havoc Spear moved from concept to combat evaluation in under three years. KTOS went from internally-funded R&D to a five-year OTA in approximately 26 months. The old 5–7 year procurement cycle is over for this category. Small, agile suppliers with internal development capability have an advantage that large vertically integrated primes cannot replicate at drone-cycle speed.
THE THREE PUBLIC-MARKET EXPRESSIONS
THE BOTTLENECK THESIS: THREE NAMES CAPTURING THE PROCUREMENT RESET AeroVironment (AVAV), Kratos Defense (KTOS), and Red Cat Holdings (RCAT) represent three distinct attack vectors on the same procurement shift. AVAV owns the loitering munition franchise and is expanding into multi-payload platforms. KTOS is the merchant propulsion supplier underneath the attritable cruise missile and drone wave. RCAT is one of the cleanest U.S.-built, NDAA-compliant public expressions of the Group 1 small-UAS reset, with Lattice integration and a new maritime leg. Together they form a triangulated position across airframe/franchise, propulsion, and small-drone/maritime — all in systems the DoD has explicitly stated it needs to buy in volume. |
AeroVironment (AVAV) | The Franchise Expands
AVAV centered SOF Week around MAYHEM 10 — a platform that moves beyond the single-purpose loitering munition role historically filled by the Switchblade family. It carries EO/IR, electronic warfare, comms relay, and lethal-effects payloads on a common airframe. Management cited approximately 100 km of range, roughly 50 minutes of endurance, and GPS-denied capability. It accepts third-party autonomy stacks. LRIP is targeted for late 2026, with production ramping toward hundreds of units per month in 1H27. That architecture is a franchise-level product, not a single-program bet.
The Army's May 4 LASSO prototype agreement for Switchblade 400 is the second near-term catalyst. LASSO was structured specifically around AI-enabled, man-portable, modular capability — the procurement-reset template in near-pure form. The prototype agreement supports rapid development, delivery, and testing, and is a strong signal on the path to program of record.
The third leg — and the one the market is most underpricing — is LOCUST X3. Sub-$5 cost-per-shot, production-ready, and proposed for the Golden Dome architecture. Against a $4M Patriot intercept, the economics are transformational. Consensus is modeling FY27 approximately 10% below what the Titan ramp and LOCUST commercialization trajectory jointly imply.
Kratos Defense (KTOS) | The Engine Under Everything
KTOS's strategy is deliberately underappreciated. While AVAV and RCAT get the platform headlines, KTOS is the merchant supplier of the propulsion systems inside those platforms — and dozens of others. Havoc Spear, Air Force FAM, Boeing's Powered JDAM, and a growing list of next-generation cruise missile and loitering munition programs run on KTOS engines.
The GEK turbofan is designed for a six-hour mission life — not a 10,000-hour overhaul cycle. That design choice, borrowing supply chain logic from automotive and firearms rather than traditional aerospace, is why KTOS can produce propulsion at cost points legacy primes cannot match. The bill of materials runs approximately 80% material, 10% labor. That is not an aerospace cost structure. That is a manufacturing advantage.
1Q26 delivered 1.6x book-to-bill, backlog growth to $2.0B, and raised FY26 guidance. The five-year OTA for MACH-TB 2.0 — up to $1.45B if all options are exercised — moved from internally-funded R&D to contract in approximately 26 months, validating the speed-as-moat thesis. The fastest-growing procurement categories in the proposed FY27 budget — hypersonics, propulsion, missiles, Valkyrie, loitering munitions — map directly onto KTOS's product portfolio.
Red Cat Holdings (RCAT) | The Pure-Play on the Reset
RCAT is one of the purest public-market expressions of the procurement thesis. The company exited 1Q26 with approximately $388M of buildable 2026 production capacity against a $150M–$180M revenue target. Gross margin hit 12.7% — the company achieved its FY28 margin guide two years early. That is an early ramp, not a speculative position.
Three things distinguish RCAT from the crowded drone universe. First, the Lattice integration — Black Widow became the first Group 1 UAS integrated with Anduril's platform, which is rapidly emerging as one of the primary open-architecture integration standards for next-generation defense. Second, NDAA compliance — Made-in-USA NDAA requirements restrict certain procurement to domestic suppliers, and RCAT is positioned as one of the cleanest U.S.-built, NDAA-compliant expressions in its category. Third, the maritime pivot — BlueOps Variant 7 is now moving to full-rate production at the Valdosta, GA facility. The Indo-PACOM RFP for approximately 1,300 USVs, with awards expected in 1Q27, is a catalyst that current consensus models do not include.
There is a fourth layer we are not making the center of this issue because the cleanest asset is private: the software integration layer. Anduril's Lattice, Northrop's IBCS, and the broader open-architecture C2 stack are where attritable systems become a kill chain instead of a product catalog. The public-market point is direct: AVAV, KTOS, and RCAT matter more because their systems are modular, software-integrated, and designed to plug into that layer. Open architecture is not a buzzword. It is the procurement gate.
WINNERS AND LOSERS — THE PROCUREMENT REALIGNMENT
TIER | NAME / TICKER | WHY THEY WIN / LOSE | THE MECHANISM |
TIER 1 — DIRECT | AeroVironment (AVAV) | LASSO prototype agreement, MAYHEM 10 franchise expansion, LOCUST X3 proposed for Golden Dome | Multi-payload loitering munition franchise + sub-$5 cost-per-shot changes defense economics at scale |
TIER 1 — DIRECT | Kratos Defense (KTOS) | GEK turbofan designed-in across Havoc Spear, FAM, Powered JDAM; $2.0B backlog, 1.6x book-to-bill | Automotive/firearms supply chain produces propulsion at cost points legacy primes cannot match |
TIER 1 — DIRECT | Red Cat Holdings (RCAT) | U.S.-built, NDAA-compliant Group 1 UAS with Lattice integration; maritime pivot via BlueOps full-rate production | NDAA moat + open-architecture integration standard + emerging maritime procurement cycle = multiple avenues for upside |
TIER 2 — ECOSYSTEM | Anduril Industries (Private) | Lattice C2 platform emerging as a primary open-architecture integration standard across DoD programs | Platform-layer rent accrues to the integration substrate; Lattice integration is now a procurement signal in itself |
TIER 2 — ECOSYSTEM | Northrop Grumman (NOC) | IBCS is a DoW-compliant open-architecture C2 system; NOC participates in the reset rather than facing it head-on | Legacy prime adapting through open-architecture assets; IBCS gets designed into next-gen command architectures |
TIER 3 — PRESSURE | Closed-Interface Legacy Franchises (BA, RTX, LMT closed platforms) | Closed, vertically integrated, high-cost platforms face share pressure at the margin as DoW mandate is enforced | Vendor lock is less valuable in systems that must iterate at drone-cycle speed; primes with open-architecture assets still participate |
TIER 3 — PRESSURE | High-Cost Interceptor Programs ($1M+ per shot) | Per-shot economics are unsustainable against mass drone attacks; USSOCOM leadership explicitly cited this as the procurement problem | Remain essential for high-end threats; face budget pressure on the mass-defense allocation as attritable alternatives scale |
PRESSURE POINTS — WHAT COULD BREAK THE THESIS
RISK | MITIGANT / CURRENT READ |
FY27 proposed budget faces congressional headwinds and CR risk; $1.5T is a request, not enacted authority | USSOCOM's 487 active CRADAs and existing contract vehicles allow procurement to proceed under CR; the pipeline doesn't stop with the budget clock |
Cheap systems are not automatically profitable systems | Attritable systems can win the procurement narrative and still disappoint shareholders if production scaling, working capital, warranty, or integration costs absorb margin; thesis depends on unit economics improving with volume, not merely revenue growing |
RCAT remains a micro-cap with limited margin buffer; execution risk is real | $388M buildable capacity vs. $150–180M revenue target provides production ramp cushion; gross margin at 12.7% already two years ahead of guide |
AVAV's BlueHalo integration carries purchase-accounting drag through FY26 | Amortization rolls off FY27; EBITDA margin expansion toward 17.9% by FY28E is structural, not cyclical |
KTOS propulsion designed-in on programs with cancellation risk | Merchant-supplier model across 5+ active programs reduces single-platform dependency; $2.0B backlog and 1.6x book-to-bill provides forward visibility |
Chinese counter-drone capabilities could neutralize attritable mass doctrine | Open-architecture mandate is specifically designed to enable continuous iteration; faster update cycles are the point, not the vulnerability |
CREDIBILITY FIREWALL
CONFIRMED — SOURCED & VERIFIABLE | DIRECTIONAL — LOGICAL EXTENSION, NOT YET CONFIRMED |
Army LASSO prototype agreement to AVAV for Switchblade 400 (AeroVironment release, May 4, 2026) | LASSO prototype agreement converts to program-of-record award (strong signal, not yet confirmed) |
KTOS MACH-TB 2.0: five-year OTA, up to $1.45B if all options exercised (Kratos press release) | 26-month internal-R&D-to-contract cycle: directional; sourced from management commentary at SOF Week, not formal disclosure |
RCAT 1Q26 gross margin: 12.7%; $150M–$180M FY26 revenue target (Red Cat earnings release) | LOCUST X3 inclusion in Golden Dome architecture: proposed, not awarded (AVAV management commentary) |
RCAT BlueOps Variant 7 moving to full-rate production at Valdosta, GA (Red Cat press release) | Indo-PACOM ~1,300 USV awards in 1Q27: RFP confirmed; award timing and structure directional |
USSOCOM 487 active CRADAs; 37% contract awards to small businesses (SOF Week 2026 keynote, Military Embedded Systems) | DAWG broader UAV/USV procurement signals approaching ~$74B: directional; $54.6B R&D ask is the confirmed figure (Breaking Defense) |
LOCUST X3 ~$3–$5 cost-per-shot vs. $4M Patriot intercept (Huntsville Business Journal, Mar. 2026) | Traditional primes face structural procurement share loss: directional inference from DoW mandate enforcement; timelines and magnitude uncertain |
BEAR CASE
What If the Procurement Reset Is Slower Than SOF Week Implies? The bear case is not wrong on the direction. Even the skeptics at the conference agreed that open architecture and attritable systems are the future. The disagreement is whether that future arrives in two years or five. Here is what bears miss: USSOCOM is already spending. The prototype agreement happened on May 4. The MACH-TB 2.0 OTA is executed. The Indo-PACOM RFP is active. These are not aspirational procurement signals. They are executed contracts and live competitive processes. The structural risk is congressional budget dysfunction — CRs and caps that slow disbursement. That risk is real. It is mitigated by the fact that USSOCOM's CRADA structure and small-business contracting pipeline operate on mechanisms that do not stop during a continuing resolution. The procurement reset is not waiting for the FY27 omnibus. The second bear risk is more important: cheap systems are not automatically profitable systems. Attritable platforms can win the procurement narrative and still disappoint investors if production scaling, working capital, warranty, or integration costs absorb the margin before it reaches shareholders. The thesis depends on unit economics improving with volume. Watch gross margin trends at RCAT and KTOS closely — the 1Q26 RCAT gross margin of 12.7% arriving two years ahead of guide is the most important early signal that this risk is being managed well. |
WHAT TO WATCH — CATALYST CALENDAR
TIMING | TICKER | EVENT | WHAT IT MEANS IF POSITIVE |
Late 2026 | AVAV | MAYHEM 10 LRIP commencement | Franchise-level platform confirmed; production ramp reprices revenue trajectory and forces consensus revision |
1Q27 | RCAT | Indo-PACOM USV award (~1,300 units) | Opens maritime as second major revenue leg; current consensus models have essentially zero maritime revenue included |
1H27 | AVAV | MAYHEM 10 ramp toward hundreds of units/month | Scale validation accelerates institutional coverage; BlueHalo amortization roll-off unlocks EBITDA expansion |
Ongoing | KTOS | GEK designed-in to additional cruise missile / loitering munition platforms | Each new design-in reduces single-platform dependency; reinforces merchant supplier moat |
AVAV — Ongoing | AVAV | LASSO prototype → program-of-record award for Switchblade 400 | Converts prototype signal into de-risked revenue line; removes a key bear-case objection |
FY27 Budget | AVAV / KTOS / RCAT | NDAA passage; DAWG and attritable systems line-item confirmation | Converts directional procurement signals into executed budget authority; forces institutional re-rating across all three names |
FIVE THINGS YOU NEED TO KNOW
1. The procurement reset is live, not theoretical. A LASSO prototype agreement to AVAV, a five-year OTA to KTOS worth up to $1.45B, and an active Indo-PACOM USV pipeline are executed actions — not policy documents. The DoW open-architecture mandate, five years old, is now being enforced at the buying desk. The shift is happening in the contract vehicles, not just the keynotes.
2. Cost-per-kill at volume is the new binding constraint. USSOCOM has formally stated the current math is unsustainable: $1M interceptors against $50K adversary drones do not scale. The $1M missile is not disappearing. It is being forced into a narrower job. The marginal procurement dollar is moving to mass, modular, attritable, and low-cost — and LOCUST X3 at $3–$5 per shot against a $4M Patriot intercept is the clearest illustration of where that dollar goes.
3. Categories are lying. Wall Street classifies AVAV as an aerospace-and-defense mid-cap, KTOS as a government-services play, and RCAT as a speculative small-cap drone company. None of those labels captures what these companies actually are: direct beneficiaries of the largest defense procurement reallocation in forty years. The sector classifications are masking the size of the opportunity.
4. Maritime is the undiscounted second act. Every drone narrative so far has been about air. RCAT's BlueOps Variant 7 moving to full-rate production and the active Indo-PACOM RFP for approximately 1,300 USVs signal that maritime procurement is accelerating on a compressed timeline. Current consensus models for RCAT and the broader defense drone universe include essentially zero maritime revenue. The Indo-PACOM award timing in 1Q27 is the single largest undiscounted catalyst in this coverage universe.
5. Speed is now the structural moat — and cheap systems still have to prove their economics. Havoc Spear went concept-to-combat in three years. KTOS went internal-R&D to OTA in 26 months. The 5–7 year procurement cycle is over for this category. But winning the procurement narrative is not the same as winning the P&L. Watch gross margin trends: RCAT's 12.7% in 1Q26, arrived two years ahead of guide, is the early signal that the unit economics thesis is on track. KTOS's book-to-bill at 1.6x is the equivalent signal on the propulsion side. These are the numbers that confirm whether the thesis is being executed or merely narrated.
The $1M missile is not disappearing. It is being forced into a narrower job.
The new money is moving to mass at cost: drones, propulsion, directed energy, maritime autonomy, and the software that ties them into a kill chain. The companies that figured that out first are already in procurement. The market will figure it out next.
The AI Buildout Has a Physical Layer
Many of today’s data centers are still using copper wiring. The same metal we’ve been using for a hundred years.
At the speeds AI demands with data moving between thousands of GPUs, billions of times a second, copper doesn’t just slow down.
It turns that data into heat. The more you push through it, the worse it gets. There’s no software for fix for that.
So what’s the answer?
Explore the Photonics Layer…..
Tuttle Capital Pure Play Photonics ETF (FOTO)
Distributor: Foreside Fund Services | Investing involves risk including possible loss of principle.
News vs. Noise: What’s Moving Markets Today
Yesterday we told you to pay attention to what Jensen says. He said $MRVL ( ▲ 2.21% ) will be the next trillion dollar company….
It’s up another 13% pre market. However, software sold off hard yesterday…..
The two names I’ve been talking about $NOW ( ▼ 1.21% ) (which Jensen also talked about) and $TTD ( ▲ 4.87% ) got crushed. Still like them both, and not sure the rotation into software has ended, but keeping our heads on a swivel just in case.
Best time to buy gold stocks is when you see headlines like this…..
Told a reporter yesterday if I could only buy one stock today it would be $FNV ( ▲ 2.04% )
Oh, and the war is still not over and oil is moving back towards $100…..
What Iran Tells Us About UFO Disclosure
When governments confront unknown threats in their airspace, defense budgets surge
and the same aerospace and surveillance companies move hardest. On March 2nd,
Northrop jumped 6% and Lockheed 3.3% on the Iran news — and President Trump has
since ordered the formal release of government UAP files, with the Pentagon confirming
compliance. So if a conventional conflict can move these stocks this fast, what happens
when the bigger story breaks?
See the UFOD holdings: [thetruthisoutthereufod.com
ETF News
A Stock I’m Watching
Undercut and rally at the 200 day, love the setup, and nobody is talking about gold. Looks red in the premarket, but not that bad. The 200 day moving average needs to hold.
In Case You Missed It
I joined George Noble’s X Spaces on Sunday to talk markets……
The H.E.A.T. (Hedge, Edge, Asymmetry and Theme) Formula is designed to empower investors to spot opportunities, think independently, make smarter (often contrarian) moves, and build real wealth.
The views and opinions expressed herein are those of the Chief Executive Officer and Portfolio Manager for Tuttle Capital Management (TCM) and are subject to change without notice. The data and information provided is derived from sources deemed to be reliable but we cannot guarantee its accuracy. Investing in securities is subject to risk including the possible loss of principal. Trade notifications are for informational purposes only. TCM offers fully transparent ETFs and provides trade information for all actively managed ETFs. TCM's statements are not an endorsement of any company or a recommendation to buy, sell or hold any security. Trade notification files are not provided until full trade execution at the end of a trading day. The time stamp of the email is the time of file upload and not necessarily the exact time of the trades. TCM is not a commodity trading advisor and content provided regarding commodity interests is for informational purposes only and should not be construed as a recommendation. Investment recommendations for any securities or product may be made only after a comprehensive suitability review of the investor’s financial situation.© 2026 Tuttle Capital Management, LLC (TCM). TCM is a SEC-Registered Investment Adviser. All rights reserved.