Needham initiated coverage on Red Cat Holdings Inc. (NASDAQ: RCAT) with a Buy rating and a price target of $17.

The firm said it viewed the unmanned aerial systems industry as entering a multi-year growth cycle, positioning Red Cat to benefit from accelerating demand for defense-grade small ISR drones. Analysts identified the U.S. Army's Short Range Reconnaissance Tranche 2 program as a key near-term opportunity, which could scale into a $200 million-plus market over the next two years.

Needham added that Red Cat's broader unmanned aerial and surface vehicle portfolio placed it at the center of an estimated $15 billion U.S. defense spending cycle focused on next-generation unmanned solutions. The firm highlighted multi-year growth drivers including the SRR2 program, rising defense spending globally, and expansion into new domains.