Australia’s defence sector is becoming increasingly vital as the nation focuses on enhancing its national security, modernising its military capabilities, and strengthening strategic alliances across the Indo-Pacific. This strategic shift is not only a response to global geopolitical tensions but also an opportunity for growth in Australia’s defence industry. For investors, this presents a compelling case for looking closely at ASX-listed defence stocks.
From advanced aerospace and weapons systems to cybersecurity and surveillance technologies, Australian companies are playing a growing role in both domestic and international defence projects. In this article, we’ll explore some of the top ASX-listed defence stocks and the key drivers shaping the industry’s future.
Why the Defence Sector Matters for Australia
Australia’s commitment to national security is reflected in its rising defence spending. In recent years, the government has pledged to increase its defence budget to over 2% of GDP, with long-term investment commitments through the Defence Strategic Review and initiatives such as AUKUS, a trilateral security pact with the United States and the United Kingdom.
This emphasis on sovereign defence capabilities is creating opportunities for Australian companies involved in:
-
Defence manufacturing
-
Cybersecurity
-
Intelligence and surveillance systems
-
Maritime and aerospace technologies
-
Maintenance and logistics services
With both government and private investment pouring into these areas, ASX-listed defence companies are well-positioned for sustained growth.
Top ASX Defence Stocks to Watch
1. Austal Limited (ASX: ASB)
Market Cap: ~A$800 million
Sector: Shipbuilding / Maritime Defence
Austal is one of Australia’s most prominent defence contractors, specialising in the design and construction of naval vessels. Headquartered in Western Australia, the company builds high-speed defence ships for clients including the Royal Australian Navy and the United States Navy.
Austal’s shipyards in Australia and the U.S. give it a competitive edge in global defence contracts. Its U.S. operations have produced a range of Littoral Combat Ships and expeditionary fast transports. Austal is also focusing on autonomous vessel development and maintenance contracts, providing long-term recurring revenue streams.
With increasing government support for domestic naval programs, Austal is well-positioned to benefit from the push for sovereign shipbuilding capabilities.
2. Electro Optic Systems Holdings (ASX: EOS)
Market Cap: ~A$200 million
Sector: Defence Technology / Remote Weapon Systems
Electro Optic Systems (EOS) develops advanced technologies used in aerospace and land-based defence systems. Its flagship products include remote weapon stations, space surveillance systems, and communications technologies.
Despite some volatility in recent years due to delays in contract deliveries, EOS continues to secure international defence contracts and develop new technologies. Its remote weapon systems are already in use in several countries, and its satellite communications division could see substantial growth under increasing demand for resilient, secure defence communications.
The company is investing in space and satellite systems, aligning with Australia’s broader focus on space as a strategic domain. This makes EOS an innovative player in a niche segment of defence technology.
3. Codan Limited (ASX: CDA)
Market Cap: ~A$1.5 billion
Sector: Communications / Electronics
Codan designs and manufactures communications equipment and metal detection technologies. Its communications division supplies high-frequency (HF) and land mobile radio (LMR) solutions to military and security organisations worldwide.
Codan’s defence-grade communication systems are essential for operations in remote or harsh environments where satellite and mobile connectivity may not be reliable. The company has a strong international presence, with defence customers in North America, Africa, and the Asia-Pacific.
Though not exclusively a defence company, Codan’s secure communications technology is a key enabler of military operations, making it a consistent performer in the sector.
4. XTEK Limited (ASX: XTE)
Market Cap: ~A$70 million
Sector: Ballistics and Tactical Solutions
XTEK is a niche defence supplier specialising in ballistic armour, drones, and tactical systems. Its products are used by military and law enforcement agencies for protection, reconnaissance, and operations in hostile environments.
XTEK owns HighCom Armor, a U.S.-based subsidiary that supplies ballistic protection equipment to military and government clients globally. The company also develops and maintains small unmanned aerial systems (SUAS), which are increasingly vital for modern warfare and surveillance.
As warfare becomes more technologically driven, the demand for lightweight, high-performance tactical gear and unmanned systems is expected to rise—positioning XTEK to benefit from future defence contracts.
Key Growth Drivers for ASX Defence Stocks
1. Rising Government Defence Spending
Australia has committed to long-term increases in defence expenditure, focusing on modernisation, supply chain security, and sovereign industrial capabilities. The AUKUS alliance and regional partnerships provide further support for increased investment in domestic defence contractors.
2. Global Geopolitical Tensions
As tensions rise in the Indo-Pacific, especially with China’s growing influence in the region, countries including Australia are prioritising national defence and regional security. This geopolitical backdrop favours increased defence spending and collaborative projects.
3. Sovereign Capability and Local Manufacturing
Defence sovereignty is now a key strategic goal for the Australian government. This means more defence contracts will be awarded to local companies, boosting ASX-listed defence players with proven manufacturing and technological capabilities.
4. Export Opportunities
Australian defence companies are increasingly expanding into international markets. Products such as Austal’s vessels and EOS’s weapon systems are being adopted by allied nations, presenting a path for global revenue diversification.
Risks to Consider
While the outlook for ASX defence stocks is largely positive, investors should be aware of potential risks:
-
Dependence on Government Contracts: Many defence companies rely heavily on contracts from government agencies, which can be subject to political and budgetary shifts.
-
Project Delays: Defence projects are often large and complex, which increases the risk of cost overruns and delivery delays.
-
Geopolitical Volatility: Although geopolitical tensions can drive defence spending, unexpected policy changes or peace agreements may reduce long-term demand.
Conclusion
Australia’s defence sector is undergoing significant transformation, driven by the need for stronger sovereign capabilities and global strategic partnerships. ASX-listed companies such as Austal, Electro Optic Systems, Codan, and XTEK are at the forefront of this change, providing critical technologies and services to both domestic and international defence programs.
