I'm sure if investors had a time machine, they would go back to this time last year and buy DroneShield Ltd (ASX: DRO) shares.
Since then, this popular ASX defence stock has risen an incredible 575%.
But perhaps you don't need a time machine after all. That's because Bell Potter believes there is a small cap ASX defence stock which has the potential to deliver incredible returns over the next 12 months.
Though, it is a high risk, high reward play, which means it would only be suitable for investors with a high tolerance for risk.
Which ASX defence stock?
The stock that Bell Potter is tipping as a speculative buy is AML3D Ltd (ASX: AL3).
It is a $97 million welding, metallurgical science, robotics, and software business, which produces automated 3D printing systems that utilise wire additive manufacturing (WAM) technology to produce metal components and structures.
Bell Potter highlights that WAM is particularly useful for the printing of large scale complex industrial parts for the defence, oil & gas, and aerospace sectors.
What is the Bell Potter saying?
The broker highlights that there are growing demand signals from the UK and European defence sectors for AML3D's offering, with its order book increasing strongly. It said:
AL3's December 2025 quarterly report points to increased system orders in the US, emerging demand signals from the UK and European defence sectors and ongoing R&D in Australia to support the next generation of ARCEMY systems. AL3's order book is now $16.5m, which includes $9m of orders on hand at the opening of FY26 plus more recently announced orders including $1.7m from FasTech (US contract printer), $4.5m from HII (Newport News Shipbuilding ordering two ARCEMY systems) and $1.2m from Austal (for a rapid deployment system).
Bell Potter also highlights that the ASX defence stock's US expansion strategy is gathering momentum, adding:
AL3 continues to advance its US expansion strategy and while the key orders in this quarterly had previously been reported, the report highlights that the revenues are expected to be forthcoming in the current financial year. Delivery into the July 2025 US Navy LOI is yet to reach critical mass (only the HII order so far) and is the key opportunity for sales growth through HII and other defence sector prime contractors.
UK/Europe is also a key opportunity where system sales should commence and accelerate in the coming quarters. AL3's sales model (upfront payments from customers) has again enabled maintenance of a strong balance sheet.
Big potential returns
According to the note, the broker has retained its speculative buy rating and 40 cents price target on the ASX defence stock.
Based on its current share price of 18 cents, this implies potential upside of 120% for investors over the next 12 months.
Commenting on its recommendation, Bell Potter concludes:
AL3's technology is particularly suited to maritime applications, giving it strong leverage into demand growth from the US Navy's Maritime Industrial Base and the US SHIPS Act. Over FY26-27, we expect AL3 to increase deployment of ARCEMY systems to the US and Europe, increase prototyping activity and ultimately commence commercial scale production of components.
There is potential for the Navy LOI to expand beyond the Maritime Industrial Base to land-based assets. AL3 will also look to deploy its technology into non-defence sector industrial manufacturing.
