After a year of outsized returns, ASX defence stocks sit at the intersection of geopolitics and rapidly evolving military technology.
While artificial intelligence remains the dominant market narrative, defence has quietly become one of the most closely watched sectors on the ASX. Rising geopolitical tension, renewed NATO commitments, and rapid advances in battlefield technology have sharpened global focus on military capability. That shift has channelled capital into a small group of Australian-listed defence specialists, sending share prices sharply higher over the past year.
Three companies stand out. Droneshield Limited (ASX: DRO) is up 348% over the past 12 months. Electro Optic Systems Limited (ASX: EOS) has surged more than 668%. Austal Limited (ASX: ASB) has climbed over 117%. Each move reflects real developments on the ground, but also highlights how volatile defence investing can be once expectations accelerate.
Growth at the frontier of modern conflict
Droneshield develops software and hardware designed to detect, track, and neutralise hostile drones. Its systems are increasingly relevant as low-cost drones play a decisive role in modern conflicts, from reconnaissance to asymmetric attacks.
The company’s strong share price performance in 2025 has been driven by tangible progress. Droneshield secured a major European military contract valued at $49.6 million, alongside a series of smaller international orders. Revenue growth accelerated, and management highlighted a sizeable pipeline tied to government and military customers globally.
That momentum explains the enthusiasm, but it also explains the volatility. Droneshield’s earnings profile remains lumpy, contracts can arrive in bursts, and the stock has experienced sharp pullbacks following periods of exuberance. Governance scrutiny and director share sales during the year also reminded investors that richly valued technology stocks can reprice quickly.
Droneshield’s opportunity is clear. It operates in a fast-growing niche with strong demand drivers. The challenge for investors is balancing that long-term potential against near-term valuation sensitivity and sentiment swings.
Scale meets execution
Electro Optic Systems has delivered the most dramatic share price move of the group, with gains of more than 7x over the past year. The company operates across remote weapon systems, space technologies, and directed-energy laser weapons, giving it broader exposure than many defence peers.
Key catalysts in 2025 were a series of large international contract wins, including a US$80 million deal for high-energy laser weapons in South Korea.
Importantly, these contracts reinforced Electro Optic Systems’ position as one of the few non-US suppliers capable of exporting advanced directed-energy systems at scale.
Investor confidence has also been supported by improved execution. After a difficult period in prior years marked by cost overruns and project delays, the company has demonstrated better delivery discipline, improved margins, and clearer earnings visibility.
That said, expectations are now high. Electro Optic Systems remains exposed to long procurement cycles, complex project delivery, and geopolitical sensitivities.
The business appears stronger than in the past, but its share price will likely continue to react sharply to contract announcements and any execution missteps.
Defence exposure with an industrial backbone
Austal’s share price rise of nearly 118% over the past year has been less explosive than its peers, but arguably more measured. The company designs and builds naval vessels, primarily for Australia and allied forces, with long-dated programs that provide multi-year revenue visibility.
In 2025, Austal secured several major contracts, including billion-dollar defence deals tied to US naval expansion. These wins helped reinforce the company’s strategic importance and underpinned a recovery in investor sentiment. Improved operational performance and a clearer forward workload also supported the re-rating.
Unlike Droneshield or Electro Optic Systems, Austal is not a pure-play on emerging battlefield technology. Instead, it offers exposure to defence spending through large-scale industrial execution. That can mean steadier cash flows, but also exposure to cost control, labour availability, and project risk.
A sector worth understanding, not chasing
The sharp gains across ASX defence stocks reflect a structural shift rather than a passing fad. Defence spending is rising, technology is evolving, and Australia’s specialist capabilities are increasingly relevant to allied nations.
Still, triple-digit gains rarely move in straight lines. Volatility can create opportunity, but only for investors who take the time to understand how each business makes money, how contracts flow through earnings, and where risks sit.
In defence investing, conviction is built through familiarity, not chasing momentum.
