Group 1 - The Themes Transatlantic Defense ETF is experiencing significant growth due to increased defense spending, with a 17.5% rise over the past month [2] - The ETF holds a concentrated portfolio of U.S. and European defense contractors, with RTX, GE Aerospace, and Boeing making up nearly 25% of its assets [2][8] - NATO members have pledged to meet a defense spending target of 2% of GDP, with some countries committing to 3% or more since Russia's invasion of Ukraine [4] Group 2 - The timing and magnitude of European defense budget increases are crucial, as pledges do not immediately translate into revenue for defense contractors [4] - There is a lag of 12 to 24 months between budget authorization and contract execution, meaning that commitments made in 2024 may only reflect in 2026 [6] - Lockheed Martin, a significant holding in the ETF, reported a 77% miss in Q2 2025 earnings, with full-year earnings down 30% to $15.69, marking the lowest since 2018 [7][8]

Core Insights - Defence stocks on the ASX have gained significant attention due to rising geopolitical tensions and advancements in military technology, leading to substantial capital inflow and sharp increases in share prices over the past year [2][15]. Company Summaries Droneshield Limited (ASX: DRO) - Droneshield's share price has surged by 348% in the past year, driven by a major European military contract worth $49.6 million and a strong pipeline of international orders [3][5]. - The company specializes in technology for detecting and neutralizing hostile drones, which are increasingly relevant in modern conflicts [4]. - Despite its growth, Droneshield's earnings are volatile, with potential sharp pullbacks following periods of high expectations [6][7]. Electro Optic Systems Limited (ASX: EOS) - Electro Optic Systems has experienced a remarkable share price increase of over 668%, attributed to large international contracts, including an $80 million deal for high-energy laser weapons in South Korea [3][8]. - The company has improved its operational execution, leading to better margins and clearer earnings visibility after previous challenges with cost overruns and delays [9]. - However, the company faces high expectations and is sensitive to long procurement cycles and geopolitical factors [10]. Austal Limited (ASX: ASB) - Austal's share price has risen by nearly 118%, supported by long-term contracts, including billion-dollar deals related to US naval expansion [12][13]. - The company focuses on designing and building naval vessels, providing more stable revenue visibility compared to its peers [12]. - Austal's business model offers exposure to defence spending through industrial execution, which entails steady cash flows but also risks related to cost control and project management [14]. Industry Overview - The ASX defence sector reflects a structural shift in defence spending and technology evolution, with Australian capabilities becoming increasingly relevant to allied nations [15]. - Investors are advised to understand the business models and contract flows of defence companies, as volatility can create opportunities for those familiar with the sector [15][16].