Overview
Defence technology has shifted from slow procurement around a few exquisite platforms toward faster demand for drones, counter-drone systems, electronic warfare, software-defined command systems, space ISR, hypersonics and resilient supply chains. This does not mean every defence stock is attractive; it means the customer pull is unusually strong where capability gaps are obvious.
The best investment angle is often not the prime contractor, but the specialist supplier: unmanned systems, tactical propulsion, sensors, secure communications, electronic warfare, space payloads, rugged computing, power systems and strategic materials.
Strongdemand pull
Highpolicy support
Mediumcommercial risk
Very Highcross-theme relevance
Stock Table
| Rank | Company | Ticker | Role | Category | Research view |
|---|
| 1 | AeroVironment | AVAV | Drones, loitering munitions, counter-drone, BlueHalo defence tech | Unmanned systems leader | Category anchor after BlueHalo; strong bookings, no longer hidden. |
| 2 | Kratos | KTOS | Combat drones, hypersonics, rocket systems, satellite ground systems | Defence tech platform | Best public “new defence industrial base” name; capex and working capital matter. |
| 3 | Leonardo DRS | DRS | Sensing, network computing, force protection, electric power/propulsion | Defence electronics | High-quality defence electronics anchor with strong backlog. |
| 4 | OSI Systems | OSIS | Security screening, inspection and defence electronics | Security / inspection | Less glamorous but profitable security infrastructure exposure. |
| 5 | Redwire | RDW | Space systems, defence space, components and microgravity | Space defence supplier | Already core space watchlist; defence demand strengthens case. |
| 6 | BlackSky | BKSY | Space ISR, Gen-3 imagery and AI analytics | Space intelligence | Direct ISR/AI analytics exposure; debt and losses remain risk. |
| 7 | Ondas | ONDS | Drones, industrial wireless and autonomous data systems | High-risk autonomy | Relevant but speculative; needs better proof of scale. |
| 8 | Castellum | CTM | Federal cyber, electronic warfare and software services | Defence cyber services | Small services name with improving results; contract timing risk. |
Value Chain Map
| Layer | What it supplies | Names | Investment note |
|---|
| Unmanned systems | Drones, loitering munitions, counter-drone, autonomous aircraft | AeroVironment, Kratos, Ondas | Fastest moving defence hardware layer. |
| Hypersonics and propulsion | Targets, rocket motors, high-speed test, propulsion systems | Kratos, AeroVironment/BlueHalo context | Strategic priority but programme timing is lumpy. |
| Defence electronics | Sensing, network compute, EW, force protection, power systems | Leonardo DRS, OSI Systems | Higher-quality, less speculative supplier layer. |
| Space defence | ISR, satellites, payloads, ground systems, communications | Rocket Lab, Redwire, BlackSky, Kratos | Defence and space are converging strongly. |
| Cyber / EW | Electronic warfare, federal cyber services, secure software | Castellum, larger primes | Services can be steady but less scalable. |
Sub-Themes
- Autonomous drones and loitering munitions
- Counter-drone systems
- Hypersonics and rocket systems
- Space ISR and missile warning
- Electronic warfare and cyber
- Secure communications and resilient command systems
Market Forces
- Ukraine and global conflict: drones, EW and counter-drone systems have become urgent.
- Great-power competition: hypersonics, space, missiles and secure communications are strategic.
- Procurement reform: governments want faster, cheaper, more attritable systems.
- Industrial-base rebuilding: defence manufacturing capacity is itself a bottleneck.
- Budget support: defence demand is unusually policy-backed.
Technology Deep Dive
The defence stack is becoming more software-defined and autonomous. Low-cost attritable drones, AI-enabled ISR, electronic warfare, secure datalinks, hypersonic testing and resilient satellite infrastructure are increasingly linked. The best suppliers either solve a specific mission bottleneck or own production capacity in constrained areas.
| Bottleneck | Why it matters | Public angle |
|---|
| Attritable drones | Mass, cost and replaceability now matter as much as exquisite platforms. | AeroVironment, Kratos. |
| Counter-UAS | Drones create demand for detection, jamming and directed-energy defence. | AeroVironment/BlueHalo. |
| Hypersonic test | Weapons development needs targets, propulsion, sensors and test infrastructure. | Kratos. |
| Space ISR | Military customers need persistent, rapid intelligence. | BlackSky, Redwire, Rocket Lab. |
| Power and propulsion | Advanced defence platforms need more electric power and compact propulsion. | Leonardo DRS. |
Company Profiles
1. AeroVironment · AVAV
Drones, loitering munitions and BlueHalo defence tech
AeroVironment is the category anchor for public unmanned systems. Its BlueHalo acquisition expands the business into counter-UAS, space, EW and defence electronics.
- Recent evidence: Fiscal Q2 2026 revenue was $472.5m, up 151% year-over-year, with bookings of $1.4bn and book-to-bill of 2.9.
- Risks: acquisition integration, valuation, programme timing and defence-budget concentration.
2. Kratos · KTOS
Combat drones, hypersonics, rocket systems and satellite ground
Kratos is a pure defence-technology platform with exposure to Valkyrie drones, hypersonics, rocket systems, microwave electronics and software-defined satellite ground systems.
- Recent evidence: FY2025 revenue was $1.347bn, up 18.5%, with adjusted EBITDA of $119.9m and consolidated book-to-bill of 1.1.
- Risks: elevated capex, working-capital needs, margin pressure and programme timing.
3. Leonardo DRS · DRS
Defence electronics, sensing and power systems
Leonardo DRS is a higher-quality defence electronics supplier with advanced sensing, network computing, force protection and electric power/propulsion exposure.
- Recent evidence: FY2025 revenue was $3.6bn, net earnings $278m, adjusted EBITDA $453m, bookings $4.2bn and backlog $8.7bn.
- Risks: valuation, US defence budget timing and execution on large programmes.
4. Redwire · RDW
Defence space systems and components
Redwire is a space systems supplier with strong defence-space relevance: components, payloads, robotics, microgravity and mission systems.
- Risks: leverage, programme timing and acquisition integration.
5. BlackSky · BKSY
Real-time space intelligence and AI analytics
BlackSky is one of the most direct public routes into space-based ISR and AI-enabled geospatial intelligence.
- Risks: debt, satellite capex, losses and contract concentration.
Future Scenarios
Bull case: defence budgets prioritise autonomy, drones, space ISR and counter-UAS, pulling specialist suppliers into multi-year production.
Base case: demand remains strong but lumpy; quality suppliers with backlog outperform speculative dual-use names.
Bear case: programme awards slip, acquisitions disappoint and capex-heavy drone/hypersonic names miss margin expectations.
Signals to Watch
- AeroVironment bookings and BlueHalo integration.
- Kratos Valkyrie, hypersonic and rocket-systems awards.
- Leonardo DRS book-to-bill and backlog.
- Space ISR contract wins at BlackSky and Redwire.
- Counter-drone deployments and directed-energy contracts.
Metrics That Matter
- Book-to-bill
- Backlog quality
- Organic revenue growth
- Adjusted EBITDA margin
- Capex and working capital
- Programme concentration
Risk Map
- Programme delay risk
- Government procurement timing
- Valuation risk after defence-tech rallies
- Fixed-price contract margin risk
- Acquisition integration
- Geopolitical escalation/de-escalation swings
Convergence
- Defence + Space: ISR, missile warning, secure comms.
- Defence + Robotics: autonomous drones and ground systems.
- Defence + Cyber: EW, secure software, AI security.
- Defence + Materials: strategic supply chains.
- Defence + Mobility: drones, eVTOL derivatives, logistics.
Research Library
Summary
Defence & Strategic Technologies deserves its own page because it is already one of the biggest demand-pull forces across Space, Robotics, Cybersecurity, Mobility, Materials and AI. AeroVironment, Kratos and Leonardo DRS are the quality/category anchors; Redwire and BlackSky are important defence-space crossover names; smaller names like Ondas and Castellum belong in the higher-risk watchlist.
Current working conclusion: focus on mission-critical suppliers with backlog, production capacity and real customer demand rather than generic “dual-use” stories.