Drones Catch a Bid as Investors Await News on Iran and Inflation

The market is on hold early Thursday morning as investors await developments in Iran and the PCE inflation report at 8:30 a.m. ET.

The Iran news was not encouraging as U.S. forces conducted defensive strikes overnight. The U.S. shot down Iranian drones and hit a control station after Iran launched attack drones at commercial ships in the Strait of Hormuz. At a cabinet meeting on Wednesday, President Trump and Secretary of State Rubio indicated a preference for a negotiated deal, but there doesn’t appear to be much progress on the two key issues of nuclear “dust” and the Strait. Oil is back up a bit Thursday morning as a result.

Lower oil had been boosting some rotational action, but the market may have gone a bit too far in pricing in the relief. That is going to shift some of the short-term rotational action if this drags out.

The Big Picture Remains Murky

The PCE index for April, the Fed’s primary measure of inflation, is due at 8:30 a.m., along with the second estimate of first-quarter GDP, durable goods orders, new home sales, and weekly jobless claims.

A hot PCE reading puts inflation back in play and reinforces the Fed’s rate-hike bias that has been building. The market is now pricing close to 70% odds of at least one hike by year’s end, and interest rates are ticking higher Thursday morning. Bonds have rallied nicely over the past five sessions due mainly to lower oil, but there is now some significant overhead resistance.

Chips Reverse on Frothy Charts

Chip stocks reversed Wednesday, and the Wall Street Journal ran a piece on semiconductor valuations, arguing that the group is not as stretched as it looks. The group trades at around 26 times forward earnings, compared with a 10-year average of 21.

Micron Technology (MU) sits at a forward P/E of roughly 10, which is very cheap if the up cycle continues for a while. There are solid profits supporting these stocks, unlike the dot-com era, when many of the leading names had little or no earnings.

The valuation argument does not change the charts, though, and the charts are frothy. The Semiconductor Index posted its best start to a year on record, climbing 82% in 2026. A group that has run that hard reverses easily when there is an excuse for some profit-taking.

Valuations will make it easier to find support, but when momentum turns downside can come fast. Reasonable multiples will not protect a stock from profit-taking when oil prices trend up and inflation is in the headlines.

Drones Are the Newest Hot Pocket

Pockets of speculative momentum persist, and Thursday morning’s hot pocket is drones. The group is surging on a report that the Trump administration is weighing direct financial support for domestic drone and defense-technology firms as part of a broader push to expand drone manufacturing capacity. The initiative is looking to create 300,000 low-cost attack drones by 2027.

I am long Ondas (ONDS) and watching for momentum to build on the news. Ondas has transformed itself over the past year from a niche drone-software name into a defense-technology platform. Its first-quarter revenue was up more than tenfold year over year, and it increased its 2026 revenue guidance to at least $390 million.

The company has been a drone roll-up play and has moved into higher-margin military software. It has a partnership with Palantir (PLTR) and is integrating the Foundry platform across its operations.

ONDS is not a value play. It is a growth-and-momentum play. The company is still posting operating losses, and dilution is a risk after it doubled its share count. However, in this environment, there is aggressive chasing of certain key themes, which makes me think this name could work well in the short term. The drone group hasn’t done much since topping in January, but should attract attention again.

My Strategy

My strategy is to stay reactive to news flow, manage positions tightly, and be selective. The pockets of momentum are likely to continue, but they are narrowing as the broad speculative wave cools a bit. That means fewer names working and faster moves in the ones that do.

I am on hold and staying patient until we have some clarity on Iran and the PCE report is digested. The momentum names are tradable, but the big picture is getting harder, not easier. I’m trading what is in front of my face rather than guessing how Iran or the inflation data will turn out.

At the time of publication, Rev Shark was long ONDS.