ASX defence stocks enjoyed a surge in 2025 and 2026.
This surge was driven by a combination of rising global geopolitical tensions, increased defence spending by Australia and its allies, and strong investor demand for companies exposed to military technology, drones, cybersecurity, and advanced manufacturing.
One ASX defence stock that rode these tailwinds to significant gains was Elsight Ltd (ASX: ELS).
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Riding tailwinds
Elsight is a supplier of communication modules to drone OEMs and the company offers advanced communication components for unmanned systems (aerial, ground and sea) systems through its flagship product, the Halo platform.
The platform aggregates all available communication paths into one resilient, encrypted pipe for beyond visual line of sight (BVLOS) control, video and telemetry.
Increased defence spending and a series of big contract wins saw this ASX defence stock rise over 800% in 2025.
However, in 2026, it has experienced some volatility, and it remains up over 80% year to date.
Yesterday, the company released quarterly results and this subsequently sent the stock price down 10%.
What did the company report?
As reported by The Motley Fool yesterday, Elsight reported:
- Customer receipts of US$5.4 million for the June quarter (US$13.6 million year to date)
- Net operating cash outflow of US$175,000 for the quarter, with a 6-month net inflow of US$3.8 million
- Net cash used in investing activities totalled US$619,000 for the quarter
- Net cash from financing activities of US$296,000 in the quarter, mainly from option exercises
- Cash and cash equivalents at quarter end of US$63.3 million
- 361 estimated quarters of funding available at current cash burn rates.
However, it seems investors were left wanting more as they largely exited their positions in this ASX defence stock.
What is Bell Potter's updated view?
Following the results, Bell Potter released updated guidance on this ASX defence stock.
The broker said the company delivered a stronger-than-expected 2Q26 result, with revenue and first-half earnings ahead of forecasts.
This was supported by strong operating leverage, slower cost growth and healthy profitability, while cash generation and the balance sheet remained solid.
Additionally, the company continued to diversify beyond OEM customers, secured its first paying government customer for its Stealth Initiative business, and remains on track to launch its non-GNSS positioning capability in late CY26.
As a result, the broker retained its buy recommendation and increased its price target to $8.20.
From yesterday's closing price, this indicates an upside potential of 27%.
ELS continues to observe strong order flow across defence and commercial customers across the US, Europe and the Middle East driven by sector tailwinds and the impact of ELS direct sales team, which was established in the prior year and is now contributing to both pipeline growth and order conversion.
