Iran War: 4 ASX Defence Stocks Surging Up to 40% and Whether to Buy Them Now

ASX defence stocks surge on Iran war- should you buy now?

ASX defence stocks surged on Monday as the US-Iran conflict sent investors rushing into military names. DroneShield (ASX: DRO) jumped 6.9% to close at A$3.87, extending its weekly gain to roughly 24%. Elsight (ASX: ELS) has been the standout mover, surging sharply in recent sessions. Electro Optic Systems (ASX: EOS) rose 10.6% to A$9.93, while shipbuilder Austal (ASX: ASB) added about 4%.

The trigger was the joint US-Israeli strikes on Iran over the weekend, followed by retaliatory attacks across the Gulf. For investors, the real question is whether this rally has legs beyond the headlines or whether the easy money has already been made.

What are the Best ASX Defence Stocks to invest in right now?

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Why ASX Defence Stocks Are Rallying Beyond Just Headlines

The Iran crisis is grabbing attention, but the bigger story is the structural shift in how the world spends on defence. According to SIPRI, global military spending hit a record US$2.7 trillion in 2024, the steepest annual rise since the Cold War ended. Every NATO member increased its budget in 2024, and the alliance now targets 3.5% of GDP by 2035. That means years of growing defence budgets ahead, not just a short-term spike.

Drone warfare is at the centre of this shift. The Iran conflict has seen waves of drone attacks deployed across the Gulf, putting counter-drone technology in the spotlight. This market is forecast to grow from US$4.9 billion to US$36.4 billion over the next decade. The demand for these products is not going away when the headlines fade.

How Each Stock Stacks Up

Not all four names carry the same weight behind this rally.

DroneShield has the strongest fundamentals of the group. Revenue surged 276% to A$216.5 million in FY2025, and the company posted its first-ever net profit. What stands out is the sales pipeline of A$2.3 billion across 50 countries, with up to A$104 million already locked in for 2026. This gives real revenue visibility heading into the new financial year.

EOS looks like the better value play on the counter-drone theme. Its backlog has tripled to over A$400 million, and Bell Potter recently lowered its price target from A$12.00 to A$9.70 following FY25 results, though it maintained its buy rating. However, investors should be aware that EOS faced scrutiny in February after US short-seller Grizzly Research questioned a conditional US$80 million Korean contract. EOS rebutted the claims and confirmed that the contract is excluded from its reported backlog. The stock remains volatile as a result, but for investors comfortable with that risk who want counter-drone exposure without paying DroneShield’s premium, EOS is worth a close look.

Austal offers the steadiest profile. A record order book of A$17.7 billion (including options) and over a decade of guaranteed government shipbuilding work make this the lower-risk choice. However, a February accounting error that trimmed FY2026 profit guidance did shake investor confidence. At current levels, we see Austal as one to watch rather than chase.

Elsight has delivered impressive growth, but it remains the smallest and most speculative of the group. The recent surge looks driven more by momentum than fundamentals, and investors should be cautious about buying after such a sharp move.

The Investor’s Takeaway for ASX Defence Stocks

The key risk is simple: geopolitical rallies historically fade once headlines cool. But what makes this time potentially different is the structural spending backdrop. Defence budgets, once raised, rarely come back down quickly.

We believe DroneShield is best positioned if tensions persist, though investors are paying a premium. EOS offers better value on the same theme. Austal suits those wanting steady, lower-risk defence exposure, while Elsight carries the most risk after its sharp run.

For those with a longer time horizon, any pullback from here could offer better entry points. Our view: prioritise names with locked-in revenue and proven execution over pure momentum plays.