This article looks at the 9 Defense Stocks That Will Skyrocket.
Smaller U.S. defense stocks have surged in 2025, driven by the Pentagon’s shift towards agile and adaptable combat systems. Another critical factor has been the rapid surge in demand for next-generation, low-cost military technology as nations modernize their militaries with AI-powered drones and unmanned vehicles that are cheap and cut dependence on ground forces.
The NYSE Arca Defense Index is up 46% YTD, as of the close on October 7, comfortably surpassing the S&P 500 Index’s gains of 14.42% during the period. Mid-to-small cap firms have been the major gainers on the index, with drone makers leading the pack.
New defense technology startups, such as Anduril Industries, are also attracting billions in funding, which is posing a challenge to legacy contractors. Industry experts believe that, unlike the traditional defense giants, the new startup firms are leaner, faster, and software-first. Moreover, most of them are building technology to help close the critical technology gaps that are vital to national security.
With that said, let’s now head over and examine the defense stocks that will skyrocket.
Our Methodology
For this article, we used screeners to identify defense stocks that are expected to perform strongly over the next 12 months with an average share price upside potential of 20% or greater. From there, we selected the top 9 stocks and ranked them in ascending order of their upside potential. Additionally, we also included data on hedge fund holdings in these companies as of Q2 2025 to provide further insight into investor interest.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
Note: All data is as of the close of the day on October 6, 2025.
9 Defense Stocks That Will Skyrocket
9. TransDigm Group Incorporated (NYSE:TDG)
Share Price Upside Potential: 23.39%
Number of Hedge Fund Holders: 79
TransDigm Group Incorporated (NYSE:TDG) is among the 9 Defense Stocks That Will Skyrocket. On September 30, BMO Capital initiated coverage of the stock with an Outperform rating and assigned a price target of $1,420 for its shares.
The firm’s analyst, Michael Goldie, sees several growth levers and stated that despite limited visibility, large-scale M&A will eventually materialise, serving as a re-rating catalyst for the stock. BMO Capital further argued that patient investors in the meanwhile can ‘collect healthy distributions’ (including special dividends) with price and productivity driving margin expansion.
In other related news, on September 17, Jefferies analyst Sheila Kahyaoglu also highlighted that TransDigm Group Incorporated (NYSE:TDG) has $6 billion of capacity for acquisitions, which could be 3% accretive to earnings at a 14x transaction multiple.
However, the analyst lowered the stock’s price target to $1,490 from $1,650, while maintaining a Buy rating for its shares. The firm also removed the company from its Franchise Picks list. Kahyaoglu told investors in a research note that TransDigm Group Incorporated (NYSE:TDG)’s EBITDA multiple had declined 4% since the end of 2023, amid lower after-market volumes.
That said, the overall sentiment around TDG remains bullish, with Wall Street analysts having a consensus Buy rating for the stock and an average share price upside potential of over 23%.
TransDigm Group Incorporated (NYSE:TDG) manufactures engineered aircraft components for commercial and military aircraft.
8. Axon Enterprise Inc. (NASDAQ:AXON)
Share Price Upside Potential: 24.71%
Number of Hedge Fund Holders: 62
Axon Enterprise Inc. (NASDAQ:AXON) is among the 9 Defense Stocks That Will Skyrocket. On September 29, JMP Securities analyst Trevor Walsh reiterated his Market Outperform rating for the stock and maintained a share price target of $825.
The adjustment followed investor meetings with the company’s Senior Director of Investor Relations on September 25 that focused on key areas like emerging products, financial dynamics, sales strategies, and the recent acquisition of emergency response company Prepared.
Walsh described Axon Enterprise Inc. (NASDAQ:AXON)’s buyout of the emergency response startup as ‘a perfect complement’ to its earlier acquisitions of Fusus and Dedrone.
The stock has had impressive returns in 2025, gaining nearly 20% year-to-date. It has earned a consensus Buy rating from Wall Street analysts, who anticipate a further 24.71% upside potential in its share price.
Axon Enterprise Inc. (NASDAQ:AXON) manufactures weapons and technology for law enforcement agencies, the military, and civilian use. The company integrates cloud software solutions and hardware devices to help enable modern policing, defense, and security.
