Macro Intelligence: ASX defence stocks climb as geopolitical tensions rise

War premium

The ongoing conflict has seen market stress build at its fastest pace since the Liberation Day tariff tantrum in April, according to a Bank of America index tracking options-implied volatility across equities, commodities, rates, and currencies.

Market stress chart

Tactical trades

ASX-listed defence stocks such as Electro Optic Systems, DroneShield, and shipbuilder Austal have been strategic stocks to consider amid the escalation.

Electro Optic Systems (ASX:EOS)

Shares in Electro Optic Systems (EOS) have risen by almost 650% over the past 12 months and recently hit an all-time high after the defence technology manufacturer secured two orders for counter-drone systems, including one linked to needs arising from the United States (US)-Israel war on Iran.

Electro Optic Systems daily candlestick chart

Technical data show shares in a strong bullish trend, confirmed by multiple indicators, specifically the five-day moving average (MA) above the 20- and 50-day MAs. A longer-term bullish signal is also implied by the 200-day MA, which is also trending higher.

 Electro Optic Systems historical trends and price targets

Analysts are upbeat about the outlook for EOS, with the average broker recommendation being a 'buy'. However, the mean target price of $9.14 suggests the stock is currently around 20% overvalued.

Ord Minnett sees EOS as a future dominant global player in counter-drone warfare and space control and has a 'speculative buy' rating on the stock with a $12.95 target price.

However, some investors have raised concerns after the stock market operator flagged inadequate disclosure of market-sensitive information regarding the nature of one of its recent contracts.

DroneShield (ASX:DRO)

Shares in DroneShield have risen 300% over the past 12 months, and technical analysis shows they appear to be in a long-term uptrend, as confirmed by multiple indicators. 

DroneShield daily candlestick chart

Analysts are bullish on the outlook for DroneShield, with an average target price of $4.90, suggesting shares can rally a further 15%.

DronesShield historical trends and price targets

Bell Potter has labelled 2026 the 'year of the drone' and expects the next 12 months will be an inflection point for the global industry, with countries poised to unleash a wave of spending on detect and defeat solutions.

However, news of insider selling, including from CEO Oleg Vornik, saw the share price drop dramatically in November 2025.

Despite the share price drop, the company reported record financial year (FY) 2025 revenue, and Vornik remains confident of the future outlook.

Austal (ASX:ASB)

Austal shares are up just 25% over the past 12 months.

Austal daily candlestick chart

Technical data show shares in a downtrend confirmed within multiple periods, with the five-day MA under both the 20- and the 50-day MA, suggesting market participants see better opportunities elsewhere. 

Austal historical trends and price targets

Brokers suggest holding the stock at current levels, while the average target price as recommended by Refinitiv of $6.12 suggests the stock can run a further 25%.

Austal buy/sell indicators and analyst projections

Going global

Meanwhile, some analysts believe a better way to benefit from the conflict is by looking at international names. Lockheed Martin shares listed on the New York Stock Exchange (NYSE) are up almost 40% over the past 12 months, outperforming the index’s 14% gain.

Lockheedd Martin Corp chart