Why Did Red Cat Stock Pop, Then Drop?
The U.S. government has moved to block foreign-made drones from its communications networks. A new law now bans these devices and their key parts if they pose national security risks. The change takes effect straight away after a security review confirms the threat.
The Federal Communications Commission (FCC) will enforce Section 1709 of the FY25 National Defense Authorization Act (NDAA). This section adds foreign-manufactured drones and their critical components to the Covered List, barring them from U.S. networks. The decision follows a White House-led review identifying unacceptable risks to safety and sovereignty.
Under the new rules, no new covered foreign drones or their parts can receive FCC approval. They are also banned from legal operation in the U.S. market. The restriction applies immediately after the security assessment confirms the danger. The move benefits domestic drone makers like Red Cat. The company, which sold just under $8 million worth of drones in the past year, now faces less competition. Despite this advantage, Red Cat remains deeply unprofitable, losing $90 million over the same period. Its market value stands at $1.1 billion, with a price-to-sales ratio of nearly 150 times. The firm is also burning cash at a rate of $70 million annually.
The ban removes foreign drone suppliers from the U.S. market, clearing space for domestic producers. Companies like Red Cat may gain a stronger foothold, though their financial struggles continue. The FCC’s immediate enforcement reflects the urgency of addressing national security concerns tied to these devices.
