Australia’s defence sector is gaining significant attention as geopolitical tensions and government spending on national security continue to rise. ASX defence stocks present a compelling opportunity to investors that are committed to ride the waves. Within the ASX200, several companies specialize in military technology, equipment, and manufacturing. Investing in ASX military stocks allows exposure to firms that supply advanced weaponry, surveillance systems, and defence solutions. Notably, Australian weapons manufacturers ASX listings have seen increased demand, driven by defence contracts and export opportunities. Additionally, those seeking diversified exposure may consider a defence ETF ASX, which provides a basket of Australian defence stocks to mitigate risk while benefiting from sector growth.

Over the past five years, Australia’s defence industry has experienced significant expansion, largely fueled by federal government funding. As a key public sector domain, it plays a crucial role in national security and serves the interests of Australian citizens. The Australian Defence Force, ADF’sdivisions are responsible for safeguarding the nation through humanitarian missions, peacekeeping efforts, and combat operations. The industry itself is categorized into multiple segments, including anti-air missiles, frigates, high-altitude long-endurance (HALE) systems, and multirole aircraft. Among these, multirole aircraft hold the largest market share, followed closely by frigates.

According to industry research, Australia’s defence sector ranks as the country’s 32nd largest industry and stands third in market size within the public administration and safety sector. Between 2017 and 2022, it recorded an average annual growth rate of 2.0%, with projections indicating a compound annual growth rate (CAGR) of over 5% from 2022 to 2026.

Defence remains a central focus under the Modern Manufacturing Strategy (MMS), with the Australian government prioritizing investments in sovereign defence capabilities. The 2022-23 budget outlines plans to increase defence spending to over 2% of GDP, supporting both national security initiatives and the well-being of defence personnel, veterans, and their families.

With growing government support and rising global demand for defence technology, certain ASX defence stocks stand out as strong investment opportunities. Below, we take a closer look at two top ASX-listed defence companies that could be well-positioned for growth in 2025.

Droneshield Limited (ASX: DRO)

• Market Cap: $238.47 million
• Current Market Price (CMP): $0.39

Droneshield Limited has secured multiple orders worth $10.4 million as part of Australia’s $20 million military aid package to Ukraine. In the December 2023 quarter, the company reported a combined total of $48 million in customer cash receipts and grants. As a global leader in the Counter-Unmanned Aerial Systems (C-UAS) sector, DroneShield continues to enhance its cutting-edge solutions to address emerging security threats. Because of C-UAS technology, the company is now strategically positioned for potential growth. The United States remains its largest and most promising market, with an expanding customer base that includes both military and non-military federal agencies.

Electro Optic Systems Holdings Limited (ASX: EOS)

• Market Cap: $178.09 million
• Current Market Price (CMP): $1.04

Electro Optic Systems (EOS) Defence Systems recently secured a $28 million contract to supply spare parts for its R600 Remote Weapon System (RWS) units to a Southeast Asian client. Under the agreement, deliveries are set to begin in late 2024 and extend through 2025 and 2026. The R600 has gained significant recognition due to ongoing advancements in its design and performance. Originally developed for a Southeast Asian customer, the system stands out in the market by offering superior firepower with minimal weight, enhanced accuracy, and increased reliability compared to competing products.

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