Electro Optic Systems (ASX:EOS) has stunned the market, climbing more than 850% in 12 months. This article breaks down what’s driving the surge, including record defence spending, rising counter-drone demand, and EOS’s growing contract backlog. We also look at the key risks investors need to watch, especially execution and profitability.
Electro Optic Systems (ASX: EOS) has delivered one of the most remarkable runs on the ASX. The stock climbed over 850% in 12 months while the broader market barely moved. A $10,000 investment a year ago would now be worth around $95,000.
But can it continue? EOS builds weapons systems that shoot down drones, technology that governments worldwide suddenly need. Its unconditional contract backlog has surged to over A$459 million, providing high revenue visibility for 2026 and 2027. While the company remains focused on scaling toward profitability, investors are now looking for consistent bottom-line Net Profit After Tax (NPAT) to justify the valuation. The share price has run far ahead of where most analysts expected.
This creates a classic investing dilemma: chase momentum or wait for proof?
The backdrop supporting ASX defence stocks has never been stronger. Global military spending reached US$2.7 trillion in 2024, according to SIPRI. That marked a 9.4% jump from the year before, the biggest annual increase since the Cold War ended.
Europe is rearming fast. Germany lifted defence spending by 28% in 2024. All 32 NATO members increased their budgets, with 18 countries now hitting the 2% of GDP target. NATO has also set a new goal of 3.5% of GDP by 2035. That signals years of contract opportunities ahead.
Australia is moving in the same direction. The 2025-26 defence budget sits at around A$59 billion, with growth expected through the decade. AUKUS commitments on submarines and missiles will drive much of this spending. Calls for Australia to push toward 3% of GDP show that both major parties see regional security as a priority.
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Within the defence boom, counter-drone systems have become urgent priorities. Conflicts in Ukraine and the Middle East show how cheap drones can threaten expensive military assets. Governments in Europe, Asia, and the Middle East are now racing to deploy countermeasures.
EOS sits at the centre of this trend. The company makes remote weapon systems, counter-drone solutions, and high-energy laser weapons. Its Slinger system, designed to destroy hostile drones, has won contracts with NATO customers and the Australian Defence Force.
The company is also expanding beyond hardware. In January 2026, EOS entered into a binding agreement to acquire the MARSS Group business, a move that integrates AI-powered Command and Control (C2) into its existing hardware. If completed, the deal would turn EOS into a full-service provider capable of winning larger prime contracts.
The numbers explain the share price surge. EOS reported a contract backlog of A$459 million at 31 December 2025. That is up 238% from A$136 million a year earlier. Key wins include a A$108 million deal with the Australian Army, a US$22 million US Army contract, and a fresh US$21 million (A$32m) RWS order for a North American customer secured in late December 2025.
Brokers have turned bullish. Ord Minnett raised its price target to A$12.72, pointing to backlog growth and strategic positioning. Canaccord Genuity rates the stock a buy with a A$10.00 target.
However, risks remain. EOS is still loss-making. With the share price currently trading around A$10.18, it has outpaced the consensus target of A$8.93, though bullish outliers like Ord Minnett see upside as high as A$12.72. A conditional US$80 million Korean laser contract still awaits finalisation. And converting a large order book into actual profit requires flawless execution on complex defence programs.
The company reports earnings on 4 March 2026. That update will show whether the backlog is translating into revenue and margins.
Key points to consider:
For growth-focused investors, the backlog visibility supports a multi-year thesis. For value-oriented investors, waiting for profitability proof may be prudent.
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