Will Mercury Systems (MRCY) Continue to Benefit From Increased Defense Spending?

Aristotle Capital Boston, LLC, an investment advisor, released its “Small Cap Equity Fund” third-quarter 2025 investor letter. A copy of the letter can be downloaded here. In the third quarter, the small-cap equities delivered strong results with the Russell 2000 Index reaching its first all-time high since November 2021. A favorable macroeconomic backdrop led the rally. In the quarter, the fund (Class I-2) delivered a return of 3.16% underperforming the 12.39% total return of the Russell 2000 Index. For more information on the fund’s best picks in 2025, please check its top five holdings.

In its third-quarter 2025 investor letter, Aristotle Small Cap Equity Fund highlighted stocks such as Mercury Systems, Inc. (NASDAQ:MRCY). Mercury Systems, Inc. (NASDAQ:MRCY), with a market capitalization of $4.14 billion, is a technology company that manufactures and sells components, products, modules, and subsystems for the aerospace and defense industries. The one-month return of Mercury Systems, Inc. (NASDAQ:MRCY) was 3.30%, and its shares gained 73.50% of their value over the last 52 weeks. On December 18, 2025, Mercury Systems, Inc. (NASDAQ:MRCY) stock closed at $68.88 per share.

Aristotle Small Cap Equity Fund stated the following regarding Mercury Systems, Inc. (NASDAQ:MRCY) in its third quarter 2025 investor letter:

“Mercury Systems, Inc. (NASDAQ:MRCY) is a Massachusetts-based technology company focused on delivering processing technology for aerospace and defense missions including signal solutions, display, software applications, networking, storage, and secure processing. The company reported strong earnings, beating analyst expectations, and benefited from its strong position as a supplier to the defense sector. We believe the company will continue to benefit from increased national defense spending as well as revenue expected from their current $1.4 billion order backlog.”

Mercury Systems, Inc. (NASDAQ:MRCY) is not on our list of 30 Most Popular Stocks Among Hedge Funds. According to our database, 26 hedge fund portfolios held Mercury Systems, Inc. (NASDAQ:MRCY) at the end of the third quarter, compared to 28 in the previous quarter. In the fiscal first quarter of 2026, Mercury Systems, Inc. (NASDAQ:MRCY) generated revenue of $225 million, up 10.2% year-over-year.   While we acknowledge the risk and potential of Mercury Systems, Inc. (NASDAQ:MRCY) as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than MERCURY SYSTEMS, INC. (NASDAQ:MRCY) and that has 10,000% upside potential, check out our report about this cheapest AI stock.

In another article, we covered Mercury Systems, Inc. (NASDAQ:MRCY) and shared Baron Discovery Fund’s views on the company. In addition, please check out our hedge fund investor letters Q3 2025 page for more investor letters from hedge funds and other leading investors.

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Disclosure: None. This article is originally published at Insider Monkey.