- Escalating geopolitical conflicts (e.g., Ukraine, the Middle East) and defense spending commitments drove global military expenditures to US$2.88 trillion in 2025, with projections reaching up to US$6.6 trillion by 2035.
- Faced with ballooning costs, governments are increasingly prioritizing defense technologies that offer high performance at a lower price point, positioning cost-effective suppliers for strong long-term growth.
- We highlight three value-driven defense stocks capitalizing on this shift: Kratos Defense (low-cost combat drones), Electro Optic Systems (laser counter-drone systems) and Sidus Space (3D-printed modular satellites).
Given China and the United States’ attempts to strong-arm the industrial complex, the one through critical mineral export controls, the other through war and tariffs, the pervasiveness of major wars in Ukraine, Africa and the Middle East, and the logical corollary of a rise in perceived security threats across the globe, it’s no surprise that defense spending is trending higher.
This article is disseminated in partnership with defense stocks Kratos Defense & Security Solutions, Electro Optic Systems and Sidus Space. It is intended to inform investors and should not be taken as a recommendation or financial advice.
According to the Stockholm International Peace Research Institute (SIPRI), global military spending hit US$2.88 trillion in 2025, up by 2.9 per cent from 2024, marking the 11th consecutive year of increases, with Europe, Asia and Oceania accounting for most of the jump, and the USA, China and Russia accounting for most of the heavy lifting at 51 per cent of total spend.
Key catalysts on this trend are mainstays on your news feed, including the Russia-Ukraine war, now in the fourth year of its latest instantiation, Israel’s multi-generational war with Palestine, NATO increasing defense spending commitments from 2 to 5 per cent of gross domestic product, a civil war in Somalia that dates back to the early 1990s, plus China continuing to bolster its economic leverage with its 31st consecutive year of higher military expenditures.
The Unites States, for its part, managed to decrease spending to US$954 billion after cutting military assistance to Ukraine, but the dip will surely be short-lived, with more than US$1 trillion approved for 2026 and more than US$1.5 trillion on deck for 2027, should Trump’s controversial budget proposal be accepted.
Looking into the future, the United Nations sees further geopolitical tension oncoming, marked by the potential for military spending to reach US$4.7-6.6 trillion by 2035, unless a shift from a violence-based approach to security is systematically replaced with a preventive, diplomatic approach that places people’s futures front and centre.
Given festering global conflict, it then stands to reason that, should a government be presented with two equally useful defense technologies, the more moderately priced option will likely prevail, more often than not, ensuring the optimal use of ear-marked funds.
This line of thought presents investors with an opening to identify defense stocks differentiating themselves through cost-effectiveness, while keeping quality and profits top of mind, granting them a more solid path to building long-term shareholder value.
Kratos Defense & Security Solutions
The first defense stock my Google rabbit hole guided me to is Kratos Defense & Security Solutions, market cap US$8.84 billion, a products, systems and software outfit supplying US and allied markets. The company’s areas of expertise include:
- Virtualized ground systems for satellites and space vehicles.
- Jet-powered unmanned aerial drones.
- Hypersonic vehicles and rockets.
- Propulsion systems for drones, missiles, munitions and spacecraft.
- Microwave electronic products for missiles, radar, space, satellites, counter-drone and communications.
Following Kratos’ in-house motto, ‘affordability is a technology,’ the company has made a habit over the past few decades of delivering products that reduce risk in tandem with cost. The shining example here are its unmanned systems, specifically its XQ-58A Valkyrie drone, which can cost as little as US$2-10 million, a fraction of the more than US$100 million price tag for traditional fighter jets, while excelling as a combat aircraft capable of carrying four small deployable bombs at a max speed of Mach 0.85, at a max altitude of 45,000 feet, over a max range of up to 5,666 kilometres, all while retaining maneuvering capabilities at over 6Gs of gravitational force.
Kratos’ focus on value has translated onto its income statements, pairing 2025 revenue of US$1.347 billion, up by 16.6 per cent from 2024, with operating income of US$25.6 million, consistent with US$29 million year-over-year (YoY), fueled by a record backlog of US$1.573 billion and a record opportunity pipeline of US$13.7 billion on track to climb over the coming quarters.
Value creation continued in Q1 2026 with the company earning US$371 million in revenue, up by 22.6 per cent YoY, supported by GAAP net income of US$11.9 million, up from US$4.5 million YoY, ending the quarter with a backlog of US$1.715 billion, which the company expects to yield US$60-70 million in operating cash flow by year end propelled by the recent acquisitions of Orbit Technologies and Nomad Global Communication Solutions.
Kratos’ path forward is de-risked by President and CEO, Eric DeMarco, who grew Titan Corporation into one of the largest government information technology companies in the US – lifting annualized revenue from US$150 million to US$1.5 billion – before joining Kratos in 2003, going on to lead its transformation from a wireless communications systems provider to a top US defense company.
Kratos stock (NASDAQ:KTOS) last traded at US$46.95, adding 1.08 per cent year-over-year and 67.26 per cent since 2021.
Electro Optic Systems
Up next in our survey of cost-saving defense stocks is Australia-based Electro Optic Systems, market cap A$1.99 billion, an advanced technology company with more than 40 years of market expertise spanning remote weapons systems, lasers, drone interception and AI-enabled tracking and intelligence solutions.
The company’s claim to fame when it comes to lowering costs for its client base, which includes high-profile names such as Northrop Grumman, Hanwha, General Dynamics and the US Army, centres on its counter-drone laser systems, including the Slinger, which integrates a radar, a 30 mm cannon and proprietary stabilization and pointing technology into a one-shot solution at a range of more than 800 m.
Designed based on real-world combat scenarios, including those ongoing in Ukraine, the Slinger is capable of neutralizing a target for as little as 10 cents per shot, potentially saving millions of dollars that would otherwise be spent on missile stockpiles.
Electro Optic also offers its larger Apollo laser system, under order by a NATO member, whose ability to take down dozens of drones per minute has been estimated at only $1 per shot, heralding an age of unprecedented accessibility in modern warfare for Western and allied nations.
The company’s broad technology portfolio, firmly embedded in the global defense market, generated net cash from operating activities of A$9.5 million in Q1 2026, down from A$19.3 million in Q4 2025, driven by significant demand across target markets, with US$230 million in counter-drone contract wins locked in year to date. The company’s total order book stood at A$726 million as of May 2026 – up from A$459 million in December 2025 and A$136 million in December 2024 – about 60-80 per cent of which is expected to be converted into revenue by 2027.
EOS’s most recent acquisition, MARSS, a European AI-enabled counter-drone systems provider, promises to expand the company’s reach by equipping it with a more turnkey offering.
As it steps forth into an ever unpredictable defense landscape, EOS will have to lean on its market-tested leadership team headed by Andreas Schwer, Managing Director and Chief Executive Officer, whose defense and space industry background has taken him across the world, including 14 years at Airbus Group and five years with major German defense player Rheinmetall AG.
Electro Optic Systems stock (ASX:EOS) last traded at A$9.66, adding 238.95 per cent year-over-year and 119.05 per cent since 2021.
Sidus Space
Last up in our trio of stocks optimizing the value of a dollar is Florida-based Sidus Space, market cap US$210.80 million, a technology and satellite manufacturer active in the areas of AI, defense and data management serving governments and commercial clients around the world.
The company’s cost advantages are notable and numerous, beginning with its 3D-printed satellite bus platforms, branded as LizzieSat, which are adaptable for missions spanning everything from Earth observation to microgravity research to in-orbit technology demonstrations.
LizzieSat’s state-of-the-art remote sensing and data analysis capabilities, full suite of mission planning and operation services, plus its progressively lower total costs per satellite – with the brand’s third generation nearly 50 per cent cheaper than the first – grant clients a flexible means to monitor adversaries and communicate in mission-critical contexts, doing away with the cumbersome equipment associated with legacy production methods.
Sidus is also adept at precision engineering, with a system in place to accommodate clients on the spectrum from prototypes to high-volume production, drawing on a team of engineers and technicians with trained eyes for customization.
The company rounds off its value-added approach with Fortis, its VPX computing module, which is designed to handle commands, data analysis, navigation and AI applications across a diversity of demanding environments, whether testing or live in the field, enabling militaries to integrate sensors, communications and weapons systems to more efficiently deliver on their objectives.
Sidus’ seamless blend of quality and cost-consciousness allowed it to raise US$53 million in 2025 alone, while maintaining stable operating expenses, despite a predominant focus on growth, having executed three satellite launches over the past year as it progresses with numerous partnerships – including with Lonestar Data and the US Missile Defense Agency – bringing its multi-pronged revenue runway more clearly into view (see slide 14 of the company’s latest investor deck).
At the helm, CEO Carol Craig, who founded Sidus in 2011, brings nearly 30 years in systems and software engineering, plus three years as a Naval Flight Officer, reinforcing the company’s path forward with on-the-ground and in-the-sky insights into its targets markets.
Sidus Space stock (NASDAQ:SIDU) last traded at US$2.87 and has added 65.90 per cent year-over-year.
Takeaway
If we define investing as tilting the probabilities of a satisfactory return in your favour, defense stocks are currently a strategic space to put capital to work.
That said, the circumstances that make this a true statement today shouldn’t be taken for a new, unchanging reality, where distrust among nations is the new normal, because we’re living in merely a snapshot in the evolution of stock market history.
All sectors fall in and out of favor over time, and the macroeconomic winds will surely turn against stocks at the heart of defense readiness eventually, when the right combination of elections, agreements and alliances make peace the preferrable commodity once again.
Join the discussion: Find out what investors are saying about these defense stocks on the Kratos Defense & Security Solutions Inc., Electro Optic Systems Holdings Ltd. and Sidus Space Inc. discussion boards and make sure to explore the rest of Stockhouse’s stock forums and message boards.
