Australia’s defence sector is becoming increasingly important as geopolitical tensions rise in the Indo-Pacific region and global military spending continues to grow. In response, the Australian government has committed billions in defence spending, including investments in advanced technologies, equipment upgrades, and local manufacturing capabilities. This has opened up a unique opportunity for investors looking to capitalise on the long-term growth potential of the defence industry.
The Australian Securities Exchange (ASX) is home to several companies that are well-positioned to benefit from increased defence contracts, international partnerships, and emerging technologies. In this article, we’ll explore the key drivers behind defence sector growth and highlight the top ASX defence stocks to watch in 2025 and beyond.
Why Invest in Australia’s Defence Sector?
Before diving into specific stocks, it’s important to understand why the Australian defence sector is attractive for investors:
1. Government Spending
The Australian government has committed over $270 billion for defence capability and infrastructure from 2020 to 2030 through its Defence Strategic Update. This includes investments in cybersecurity, missile systems, naval vessels, and aerospace technologies.
2. Geopolitical Tensions
Australia’s proximity to the Indo-Pacific—home to rising military powers like China—places it in a strategically sensitive region. This leads to consistent demand for military readiness and defence upgrades.
3. Local Industry Focus
Australia is aiming to build sovereign defence capabilities, including manufacturing and supply chain development. This benefits local companies involved in shipbuilding, surveillance, and aerospace systems.
4. Global Defence Partnerships
Many Australian companies partner with global defence giants like Lockheed Martin, Boeing, and Raytheon, enabling them to participate in international defence programs.
Top ASX Defence Stocks to Watch
Here are some of the most prominent ASX-listed companies with significant involvement in the defence industry:
1. Austal Limited (ASX: ASB)
Overview: Austal is a leading shipbuilder that designs and constructs defence and commercial vessels. It is best known for supplying high-speed ships to the U.S. Navy and other allied nations.
Why Watch:
Strong order book with global defence clients
Government support for sovereign shipbuilding capabilities
Expanding into autonomous and unmanned vessels
Key Risk: Exposure to supply chain delays and contract execution risk
2. Electro Optic Systems (ASX: EOS)
Overview: EOS is a technology company specializing in remote weapon systems, space communications, and electro-optic sensor technology. It provides advanced defence solutions to governments and militaries globally.
Why Watch:
High-tech growth potential, especially in satellite and laser systems
Expansion into U.S. and Middle East markets
Government support for advanced weapon systems
Key Risk: R&D expenses and reliance on large defence contracts
3. Codan Limited (ASX: CDA)
Overview: Codan produces high-frequency (HF) radio and communication systems used by defence forces worldwide. It also has a presence in metal detection and mining tech.
Why Watch:
Strong margins from defence communications business
Global customer base with recurring demand
History of consistent earnings growth
Key Risk: Exposure to cyclical mining industry (via Minelab division)
4. Quickstep Holdings (ASX: QHL)
Overview: Quickstep manufactures advanced carbon fibre composite parts for the aerospace and defence industries. It supplies components for the F-35 Joint Strike Fighter and other military aircraft.
Why Watch:
Defence aerospace exposure through long-term contracts
Growing involvement in drones and unmanned systems
Strategic partnerships with defence primes
Key Risk: Limited profitability and dependence on large aerospace contracts
5. Xtek Limited (ASX: XTE)
Overview: Xtek develops protective equipment, including body armour and ballistic helmets, as well as unmanned systems for military and law enforcement use.
Why Watch:
Growing demand for soldier protection and robotics
Defence and homeland security client base
Investment in proprietary technology and IP
Key Risk: Small-cap stock with lower liquidity and earnings volatility
Honourable Mentions
While not pure defence plays, the following ASX companies have exposure to the sector:
Boeing Defence Australia (part of Boeing, but with significant local operations)
Nova Systems (private company, but partners with listed firms)
Thales Australia (subsidiary of global Thales Group; works with ASX contractors)
Risks to Consider When Investing in Defence Stocks
Like all investments, defence stocks carry risks:
Contract Dependency: Many defence companies rely on a few large contracts. Losing a key client could hurt revenue significantly.
Regulatory Risk: Defence exports and contracts are subject to government regulations and geopolitical shifts.
Budget Cuts: A change in government or fiscal policy may lead to reduced military spending.
R&D Costs: High-tech defence companies often spend heavily on research and development, which can impact short-term profitability.
Investment Tips for the Defence Sector
Diversify: Don’t rely on just one company. Spread investments across multiple stocks and sectors to reduce risk.
Understand the Business: Read company reports, contract announcements, and government defence updates.
Track Global Events: Geopolitical developments can quickly influence stock prices in this sector.
Be Long-Term Focused: Defence investments often pay off over longer cycles due to the nature of contracts and project timelines.
Final Thoughts
Australia’s defence sector is entering a period of significant growth driven by strategic priorities and increased government spending. For investors, ASX defence stocks offer a mix of innovation, long-term contracts, and global exposure. While risks exist—particularly around contract dependency and government regulation—a well-researched and diversified approach can uncover strong investment opportunities.
Whether you’re seeking exposure through shipbuilding, communications tech, or aerospace components, the ASX provides several defence-linked companies poised to benefit from a rapidly evolving global landscape.
