ASX defence stocks have surged in 2025.
This has been influenced by ongoing geopolitical tension, which has prompted governments to spend more on their defence sector.
This includes development of technology such as drones, AI or electronic warfare. It also includes equipment such as missiles or submarines.
Australia is included in this defence spending push.
In March this year, the Australian government announced it was investing an additional $50.3 billion into the Australian Defence Force (ADF).
Yesterday, the team at Bell Potter released a report including analyst outlooks and stock picks for December 2025.
In the report, Baxter Kirk, Industrials Analyst, said global defence strategy is undergoing a structural pivot, driven by the proliferation of low-cost, high-lethality unmanned systems in recent conflicts.
This rise of asymmetric warfare has exposed the economic inefficiency of traditional air defence, creating an urgent mandate for "attritable" drones and cost-effective counter-measures.
We view the twin themes of resilient drone connectivity and counter-drone solutions as key drivers of defence procurement for the coming cycle.
The report also included two ASX defence stocks with buy recommendations.
Image source: Getty Images
Electro Optic Systems Holdings Ltd (ASX: EOS)
The company is a provider of counter-drone solutions, remote weapon systems (RWS), and space control technologies.
Its stock price has already risen by 266.41% in 2025.
According to Bell Potter's report, following the landmark A$125m award for the world's first export of a 100kw High Energy Laser Weapon (HELW) in August 2025, EOS has secured a firstmover advantage in the high-value HELW counter-drone vertical.
Looking ahead to 2026, the broker said it sees upgrade potential to revenue estimates, driven by increasing global capital allocation toward counterdrone capabilities.
Specifically, Bell Potter anticipates the advancement of HELW contracts (>1 unit) through the sales pipeline alongside continued awards for conventional and counter-drone RWS.
As well as a buy recommendation, Bell Potter has a price target of $8.10 on this ASX defence stock.
From yesterday's closing price of $4.80, this indicates a further upside of 68.75%.
Elsight Ltd (ASX: ELS)
Elsight is a key supplier of communication modules to drone manufacturers.
Its flagship product, Halo, integrates multiple communication pathways (5G, LTE, SATCOM, RF) into a single resilient, encrypted data link, functioning as a mission-critical enabler for Beyond Visual Line of Sight (BVLOS) operations.
According to Bell Potter, CY25e marked a pivotal inflection point for ELS, with the company achieving profitability and delivering estimated revenue growth of 12x YoY (BPe).
We enter CY26e viewing Halo as a marketleading enabler of BVLOS connectivity for unmanned systems. Accordingly, we forecast a 41% revenue CAGR over CY25-28e, driven by the rapid proliferation of unmanned systems across both defence and commercial verticals.
Elsight has risen by 473.68% already in 2025.
The broker has a price target of $2.00 along with a buy recommendation.
This indicates this ASX defence stock is trading close to fair value or slightly over at $2.18.
