Global defence spending is rising rapidly as governments respond to geopolitical tensions, military modernisation, and the need to strengthen national security. In 2025 alone, global military expenditure reached about US$2.63 trillion, reflecting a continued increase in defence budgets across many regions.

For investors on the ASX, this shift has created growing interest in companies involved in defence technology, shipbuilding, cybersecurity, communications systems, and military equipment manufacturing. As governments commit billions to new defence capabilities, companies supplying these technologies can benefit from long-term contracts, expanding order books, and stronger revenue visibility.

Many Australian-listed defence-related businesses operate in areas such as drone defence systems, advanced communications, naval shipbuilding, specialised metals and manufacturing technologies. These sectors align closely with modern military priorities, including autonomous systems, cybersecurity, intelligence technologies, and advanced materials.

Another important driver is Australia’s own defence strategy. The government plans to significantly increase defence investment over the coming decade, with spending projected to rise from around A$59 billion today to nearly A$100 billion by 2034. This includes funding for major programs such as submarine development, advanced weapons systems, and next-generation defence technologies.

For investors, the ASX defence sector offers exposure to a structural growth theme rather than a short-term trend. As geopolitical uncertainty persists and military modernisation accelerates globally, companies involved in defence infrastructure, aerospace systems, and security technologies may continue to attract capital and deliver long-term growth opportunities.

Riding the Defence Spending Boom: ASX Stocks Positioned for Growth

Global defence spending is rising at one of the fastest rates in decades, creating a powerful long-term investment theme for companies connected to the defence supply chain. In 2024 alone, worldwide military expenditure reached about US$2.7 trillion, marking a 9.4% increase from the previous year, the largest annual jump since the end of the Cold War.

This surge is largely driven by geopolitical tensions, ongoing conflicts, and the growing need for countries to modernise their military capabilities. Governments across Europe, Asia, and the Indo-Pacific are allocating larger budgets to defence technologies, including advanced communications systems, drones, cybersecurity platforms, and naval infrastructure.

Australia is also significantly increasing its military investment. Under the national defence strategy, the country plans to lift annual defence spending to more than A$100 billion by 2033–34, reflecting a long-term commitment to strengthening national security and regional deterrence capabilities.

For investors, this environment creates opportunities across several ASX-listed sectors. Companies involved in defence technology, aerospace engineering, advanced materials, shipbuilding, and cybersecurity are particularly well-positioned to benefit from rising government contracts and expanding defence budgets.

Importantly, defence spending tends to be stable and long-term, often supported by multi-year contracts and government funding commitments. This can provide greater revenue visibility for companies operating in the sector.

As geopolitical competition intensifies and governments prioritise military readiness, ASX-listed defence-linked businesses may continue to attract investor interest amid a structural growth trend in global security spending.

Three ASX Stocks Benefiting From the Defence Spending Boom

These ASX stocks give you exposure to the rising interest in defence spending:

1. DroneShield Limited (ASX: DRO)

Source: asx.com

DroneShield Limited is an Australian defence technology company specialising in counter-drone and electronic warfare systems. Founded in 2014 and listed on the Australian Securities Exchange, the company develops hardware and software designed to detect, track, and neutralise unmanned aerial systems (UAS), commonly known as drones.

Its product portfolio includes sensor platforms, AI-powered detection systems, and electronic countermeasures such as the well-known “DroneGun,” which can disrupt the communications of hostile drones. These technologies are used by military organisations, intelligence agencies, airports, prisons, and operators of critical infrastructure to prevent drone-related security threats.

DroneShield operates globally, with customers across the United States, Europe, Asia and the Middle East. The growing use of drones in warfare, surveillance and terrorism has created a strong demand for counter-drone solutions, placing the company in a rapidly expanding niche within the defence sector.

In recent years, DroneShield has expanded its engineering and manufacturing capacity while strengthening partnerships with defence contractors and governments. The company’s focus on artificial intelligence, electronic warfare and integrated counter-UAS solutions positions it as one of the few pure-play counter-drone companies listed on global stock markets.

Financials

DroneShield has recently experienced a sharp improvement in its financial performance as defence demand accelerates. In FY2025, the company reported revenue of about A$216.5 million, representing roughly 276% growth year-on-year, driven by strong defence contracts and increased adoption of counter-drone technology.

The company also achieved a major milestone by turning profitable. FY2025 results showed net income of around A$3.5 million, marking a transition from previous losses as revenue scaled up and operational leverage improved.

Operational performance has also strengthened. Gross margins were reported at around 64.8%, reflecting the high value of defence technology products and software services.

DroneShield’s balance sheet remains solid. The company reported approximately A$210 million in cash and term deposits, with no debt, giving it a strong financial position to fund expansion and research activities.

Additional contracts are also supporting revenue visibility. Several new defence deals worth about A$21.7 million were recently secured, while the company has already locked in significant committed revenue for the coming year.

Outlook

The outlook for DroneShield appears closely tied to the rapid global growth of defence spending and counter-drone demand. Drones have become an increasingly common tool in modern warfare, border surveillance, terrorism and smuggling operations, creating urgent demand for technologies that can detect and neutralise these threats.

DroneShield is well-positioned to benefit from this trend. The company reported a pipeline of potential contracts worth around A$2.3 billion, highlighting the scale of future opportunities in the defence sector.

Short-term visibility has also improved. The company entered 2026 with roughly A$95.6 million in committed revenue, already securing a significant portion of expected annual sales before new contracts are signed.

Analysts expect strong growth in the coming years. Forecasts suggest revenue could grow more than 40% annually, while earnings may expand even faster as production scales and margins improve.

DroneShield is also expanding manufacturing capacity and investing heavily in research and development to maintain its technological edge in electronic warfare and AI-based defence systems.

However, risks remain. Defence procurement cycles can be unpredictable, and the company must successfully convert its contract pipeline into actual revenue.

2. Electro Optic Systems Holdings (ASX: EOS)

Source: asx.com

Electro Optic Systems Holdings is an Australian defence and space technology company headquartered in Canberra. The company develops advanced military systems for modern warfare, particularly in remote weapon systems, counter-drone technologies, and space tracking infrastructure. Its operations are divided mainly into two segments: Defence Systems and Space Systems. Read all our latest articles about Electro Optic Systems Holdings (ASX: EOS) here.

In the defence segment, EOS designs and manufactures remotely operated weapon stations, surveillance systems, and high-energy laser technologies that can be mounted on armoured vehicles or installed in air-defence platforms. These systems are used by military customers across Europe, the Middle East, and the Asia-Pacific region.

The company is also active in space technology through its Space Systems division, which develops satellite-tracking systems and optical sensors for monitoring space debris and satellite movements. This capability has become increasingly important as global governments invest more heavily in space security and space situational awareness.

EOS has been expanding internationally to meet rising defence demand. For example, the company recently opened a production facility in Singapore to manufacture high-energy laser weapons for global customers.

With governments around the world increasing defence spending and focusing on advanced technologies such as autonomous weapons and anti-drone systems, EOS has positioned itself as a specialist supplier in several fast-growing defence niches.

Financials

Electro Optic Systems’ financial results reflect a company transitioning through restructuring while expanding its defence technology portfolio. In recent years, revenue has fluctuated due to contract timing, restructuring activities, and project delivery cycles.

For example, the company reported A$176.6 million in revenue in 2024, though sales have varied with the timing of major defence contracts.

Over the last twelve months, EOS generated around A$115 million in revenue, highlighting the business's still-growing scale. The company’s financial performance has historically included losses as it invested heavily in research and development and in restructuring initiatives to reposition the business.

More recently, EOS has shown signs of improvement. The company reported net income of roughly A$18.6 million in the latest results, marking a significant turnaround from previous losses and suggesting its restructuring efforts may be paying off.

Another positive indicator is the company’s expanding order pipeline. EOS has grown its defence order book to approximately A$459 million, providing stronger revenue visibility for future years.

The company also maintains a relatively strong balance sheet with limited debt, giving it flexibility to invest in new defence technologies and scale manufacturing capacity as demand increases.

Outlook

The outlook for EOS is closely tied to the rapid growth in global defence spending and the increasing importance of advanced military technologies. Governments are investing heavily in systems designed to counter emerging threats such as drones, missile swarms, and cyber warfare.

EOS appears well-positioned to benefit from these trends. Its high-energy laser systems and remote weapon stations are designed specifically to counter modern battlefield threats. The company recently secured a landmark contract worth about €71 million to supply high-power anti-drone laser systems, highlighting growing international demand for these technologies.

In addition, EOS is expanding production capabilities to meet future demand. The company’s new manufacturing hub in Singapore will support global customers and potentially accelerate export growth across Asia and Europe.

The company’s order backlog and growing pipeline of defence contracts suggest that revenue could increase as projects move into delivery phases. Management has indicated that achieving annual revenue above A$200 million could enable the business to achieve break-even or profitability consistently.

However, there are still risks. Defence procurement cycles can be long and unpredictable, and revenue may fluctuate depending on when large contracts are signed or delivered.

3. Austal Limited (ASX: ASB)

Source: asx.com

Austal Limited is an Australian defence shipbuilding company headquartered in Western Australia and listed on the ASX. Founded in 1988, the company specialises in designing and constructing high-performance naval and commercial vessels, particularly aluminium warships and patrol boats used by governments and defence forces around the world. Austal has become one of the few global shipbuilders capable of producing large-scale naval platforms for major defence programs.

The company operates shipyards in Australia, the United States, Vietnam and the Philippines, allowing it to supply vessels to a broad international customer base. Its U.S. operations are especially important, as Austal builds vessels for the U.S. Navy and U.S. Coast Guard, including littoral combat ships, expeditionary fast transport vessels and patrol boats. These contracts have made the United States one of Austal’s largest revenue sources.

Austal’s core business focuses on defence shipbuilding, maintenance and support services. As global defence spending rises, naval fleets are being expanded and modernised, increasing demand for shipbuilders capable of delivering advanced military vessels. The company has positioned itself as a key supplier of maritime defence platforms and support services, benefiting from long-term government contracts and multi-year shipbuilding programs.

Important Disclaimer: You’re reading a free article that offers general opinions and insights. For exclusive, in-depth research, timely high-conviction investment ideas, and actionable trade signals designed to help you stay ahead, join Proactive Equities today by opening a Free Trial Account now!

Financials

Austal has recently delivered strong financial growth amid rising defence spending globally. In FY2025, the company reported revenue of about A$1.82 billion, representing roughly 24% growth year-on-year as new defence shipbuilding programs ramped up in both Australia and the United States.

Profitability improved significantly as well. Net profit surged to around A$89.7 million, a dramatic increase compared with the previous year as operational performance improved and shipbuilding activity expanded.

The company also recorded strong earnings growth. EBIT reached approximately A$113 million, reflecting better margins and increasing delivery of defence projects.

More recent results continue to show momentum. In the first half of FY2026, Austal generated about A$1.1 billion in revenue, a 34% increase compared with the previous corresponding period. Net profit for the half year reached about A$30.5 million, supported by higher shipbuilding activity.

Austal maintains a relatively solid balance sheet as well. The company holds hundreds of millions in cash reserves, providing financial flexibility to expand production capacity and pursue large naval programs.

Outlook

The outlook for Austal appears strongly linked to the global surge in defence spending and naval modernisation programs. Governments worldwide are investing heavily in maritime security, patrol vessels and naval combat systems, creating long-term demand for shipbuilders like Austal.

One of the most significant indicators of future growth is the company’s record order book, which has reached about A$17.7 billion. This backlog provides revenue visibility for several years and reduces the company’s dependence on short-term contract cycles.

Austal is also expanding its manufacturing capacity, particularly in the United States. Its U.S. shipyards allow the company to participate in large defence programs for the U.S. Navy and Coast Guard, which are among the largest naval procurement budgets in the world.

Another potential catalyst is the expansion into steel shipbuilding programs, which could enable Austal to compete for larger naval vessels and significantly increase future revenue opportunities.

Geopolitical tensions and rising defence budgets globally are expected to continue supporting the defence shipbuilding industry. With governments committing to new naval fleets and maritime security initiatives, Austal’s expertise in building advanced vessels places it in a favourable position.

However, risks remain, including project cost overruns, contract timing issues and fluctuations in defence procurement cycles. Even so, the company’s strong order book and growing defence partnerships suggest Austal could remain a key beneficiary of the expanding global defence market.

FAQs about the best ASX defence stocks to invest in

1. Why are defence-related ASX stocks gaining more attention from investors?

Global defence spending is increasing as governments respond to geopolitical tensions and security threats. This leads to larger military budgets and more long-term contracts for companies that supply defence technology, naval vessels, surveillance systems, and security infrastructure.

2. What types of companies benefit the most from rising defence spending?

Companies involved in defence technology, aerospace engineering, shipbuilding, cybersecurity, and advanced military equipment tend to benefit the most. These businesses often receive multi-year government contracts, which can provide stable revenue and long-term growth potential.

3. Is investing in defence stocks a long-term opportunity?

In many cases, yes. Defence spending is usually planned over many years through government budgets and strategic programs. As global security concerns persist, companies supplying military technology and equipment may continue to see sustained demand for their products and services.