Drone stocks are surging on Wall Street, led by Red Cat Holdings

Drone stocks rallied Monday as retail interest ramped up in the sector following a Palantir partnership with Red Cat Holdings and amid a flurry of mysterious sightings in New Jersey and other Northeast states that Wall Street believes could boost funding for the industry.shares rallied more than 19% on news that it's working with Palantir to integrate visual navigation software into its drones.

The partnership news comes as recent sightings across the Northeast have reignited interest in the sector, while also fueling national security concerns. FBI officials on Thursday said there was"no evidence" that the drones jeopardize"national security and public safety." Officials alsoMany on Wall Street view the incoming White House administration as a potential boon that could boost funding for the sector and U.S.-made drones.

"On the drone protection side, federal government counter-drone technologies are increasingly being used by local and state law enforcement to protect stadiums, airports, prisons, and other public settings," said William Blair analyst Louie DiPalma in a note to clients."This will likely result in a surge in counter-drone investments by local and state government agencies over the next decade.

Investors have also come to view ties to the sector through Trump Jr.'s connection to Unusual Machines as another potential tailwind for the industry. The eldest son of the president-elect joined the advisory board of the company in November.Congress has also taken interest in the sector. The National Defense Bill, recently passed in the House, is also drawing interest. If the bill is passed by the Senate and signed into law, China-based DJI would be barred from selling new drones to the U.

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