Volatus Aerospace, TKMS, and Rheinmetall: Three Stocks for the Next Defence Boom

Volatus: A Small Drone Stock with Great Potential

The most exciting stock in this trio remains Volatus Aerospace. The stock is not for investors with weak nerves, but it offers exactly the mix that sparks imagination on the stock market during boom phases: a hot investment theme, a low market capitalization, operational momentum, and the prospect of significantly larger orders. In recent years, Volatus has evolved from a rather unassuming drone service provider into an integrated aerospace and defence platform. The Canadian company does not just sell drones; it offers training, flight operations, data analysis, sensor technology, maintenance, software, and increasingly, military applications, all from a single source.

This is important because the drone market is currently undergoing a major realignment. In the past, the field was often the domain of specialists. Today, drones are a central component of modern warfare. Reconnaissance, target acquisition, border surveillance, protection of critical infrastructure, drone defence, and autonomous systems are high on governments' shopping lists. And Volatus aims to be at the forefront of this major game in the future.

Particularly exciting is the new production and integration strategy in Mirabel, Québec. There, Volatus is building a scalable platform for the series production and integration of military long-range drones for CAD 10 million. The location is secured for the long term and fits perfectly into the broader political landscape. Canada aims to build up more defence capabilities within its own borders. Western governments are also seeking suppliers that are not tied to problematic supply chains. This could create an ideal window of opportunity for Volatus. In any case, the investments show that the company is not preparing for a few small orders, but is planning for larger government and NATO-related programs. That is precisely why the news flow could become interesting in the coming months.

Full Order Books

At first glance, the first-quarter operating figures were still fairly unspectacular. Revenue stood at around CAD 5.6 million. At the same time, however, the gross margin, at 35%, already reached the highest level ever recorded in a first quarter in the company's history. This suggests that the business mix is improving.

More importantly, Volatus estimated its order pipeline at around CAD 600 million at the end of March. For a company of this size, that is more than impressive. Management also expects recurring revenue of around CAD 20 million for 2026. Of course, a pipeline does not yet translate into revenue. Volatus must demonstrate in the coming quarters that interest is turning into actual orders. In the first quarter, delays in defence contracts and supply chain issues weighed on the company. However, management emphasized that the affected contracts remain active and that deliveries have been postponed to the second quarter.

If confirmed, the market could quickly refocus on the company. For smaller defence technology firms, a single major government contract is often enough to significantly improve investor sentiment toward the stock.

Software, Drone Defence, and NATO Potential

The second driver lies in software. Volatus is working on platforms such as SKYDRA and V-Cortex AI. SKYDRA targets counter-UAS applications—that is, the planning, simulation, and preparation of drone defence operations. This area is becoming increasingly important, particularly in the military sector. The cheaper and more widespread attack drones become, the greater the need for detection, simulation, defence, and training. This is precisely where Volatus can excel with its combination of operational experience, software, and training.

Also of particular interest is the collaboration with Sentinel R&D on a Canadian interceptor UAV platform. It is not a billion-dollar contract yet, but it fits perfectly with the times. Drone defence is becoming a perennial issue for armies, airports, energy facilities, ports, and critical infrastructure. On top of that, Volatus has already secured a multi-year training contract with a NATO-allied government. Such contracts are interesting not only for their volume but also for their symbolic significance. Once a company supplies to a NATO-affiliated environment, it becomes more visible for future programs.

Share with Takeover Potential

The capital markets story is also gaining momentum. Following its move to the Toronto Stock Exchange, the stock has become more accessible to institutional investors. Market participants are already speculating that additional capital markets initiatives could follow over the medium term.

There is also takeover potential. Major defence and technology conglomerates are under pressure to quickly establish a foothold in the drone sector. Building their own platforms takes time. Smaller specialists with proven technology, operational experience, and government references can therefore quickly become targets. Volatus would be of interest to larger players because the company offers not just individual drones, but an entire ecosystem encompassing production, software, training, and operations.

Analysts See Significant Upside Potential

On the stock market, Volatus Aerospace remains a classic early-stage investment. The company is still reporting losses, and its valuation is driven largely by expectations for future growth, making the shares inherently speculative. To justify a higher valuation, Volatus will need to demonstrate that its project pipeline converts into revenue, that the Mirabel facility scales successfully, and that software solutions such as SKYDRA achieve broad commercial adoption. If the company executes successfully on these objectives, the shares could be re-rated by the market. Stock market experts also remain optimistic about the stock. The current average analyst consensus price target stands at approximately CAD 1.04, implying roughly 75% upside from the current share price.

TKMS: Submarine Deal as a Seal of Approval

While Volatus represents speculative drone exposure, TKMS provides the maritime side of the defence boom. The stock is still new to the market, but the story is well known: TKMS is one of the leading Western suppliers of non-nuclear-powered submarines. It is precisely this niche that is now once again becoming a strategic growth area. Canada has officially selected TKMS as the preferred bidder for the Canadian Patrol Submarine Project. The deal could involve up to 12 Type 212CD submarines. This is not yet a finalized contract, but rather the start of final negotiations. However, this step alone is a major milestone. According to the company, the potential contract value could be well over EUR 15 billion, which could increase TKMS's existing order backlog by more than 50%.

Strategically, the deal is almost more important than it is financially. Canada would join the existing 212CD platform used by Germany and Norway. This could result in a joint NATO submarine family with up to 24 units. Standardization, joint development, reduced technical risks, and lower life-cycle costs would follow. For TKMS, this would be a major accolade. The Kiel-based company would not only be an exporter but also the core of a transatlantic naval program.

The timing is perfect. Canada plans to replace its aging submarine fleet and expand its capabilities in the Atlantic, Pacific, and Arctic. The decision was made on the sidelines of the NATO summit in Ankara and is viewed politically as a signal for closer cooperation between Canada, Germany, and Norway. Reuters reports that TKMS prevailed over South Korea's Hanwha Ocean, though the final contract still needs to be negotiated. The AP news agency also views the decision as part of Canada's military buildup and efforts toward greater NATO interoperability.

Contract Expected to Be Finalized by the End of 2026

In the short term, however, one should not read too much into TKMS's earnings estimates. DZ Bank does not initially expect a significant impact on the estimates, as the final contract has not yet been signed and the contributions to earnings are still far in the future. TKMS cites 2033 for the first delivery of the 212CD submarine; the investor relations briefing mentions the first three submarines by 2035. The next major catalyst would therefore be the final contract signing, expected by the end of 2026.

This is still a strong development for the stock. TKMS offers exactly what defence investors love: visibility, a long order backlog, and geopolitical relevance. After its strong market debut, the stock is no longer a hidden gem. But the Canada deal shows that TKMS is not just a spin-off with a nice story; it is a genuine beneficiary of the new maritime security landscape.

Rheinmetall: The Great German Long-Distance Runner

The defence boom is even more evident at Rheinmetall. The Düsseldorf-based DAX-listed company has long been considered one of the major winners of European rearmament. In addition to ammunition, military vehicles, air defence, tank technology, and electronics, the Rhineland-based company also offers drones. Rheinmetall is increasingly positioning itself as a full-service provider for modern battlefields. That is precisely what keeps the stock interesting. After all, the company is not reliant on a single project but benefits from nearly all major trends in defence spending.

The Drone Story Fuels Imagination

What is particularly exciting is that Rheinmetall is now making a serious push into the drone market. The Bundeswehr contract for the FV-014 loitering munition was an important step. The first call-off order amounts to approximately EUR 300 million, with deliveries set to begin in 2027 following qualification. Reuters reports a framework contract worth billions, with potentially five-digit unit quantities. This gives Rheinmetall, in addition to its tank and munitions expertise, its own drone story, which fits perfectly with the group's traditional munitions and platform expertise.

This is more than just a side issue. Loitering munitions are transforming modern warfare. These systems circle over the theatre of operations, identify targets, and can strike with precision when necessary. A new industrial value chain is emerging precisely at the intersection of drones, munitions, software, and connectivity. In addition, Rheinmetall is working with Auterion on a standardized operating system for military drone systems. For long-term investors looking to bet on military stocks, Rheinmetall thus remains not only the major beneficiary of military buildup but also, increasingly, a German drone and defence tech stock.

Price Pullbacks as Buying Opportunities

Rheinmetall's strength lies in its breadth. When drones are booming, Rheinmetall is there. When ammunition is in short supply, Rheinmetall is there. When Europe reorders tanks, vehicles, or air defence systems, Rheinmetall is also there. That is precisely why the stock, while quite expensive, with a 2027 P/E ratio of around 25, is extremely well supported by its operations. Most analysts remain positive on the stock. Of the 24 banks and research firms that cover Rheinmetall, 22 recommend buying. The analysts' average price target is EUR 1,737, more than 50% above the current share price. The recent pullback, which has halved the previously surging share price from its high of around EUR 2,000, now offers long-term-oriented investors a good opportunity to build positions.

The defence boom is no longer just a short-term stock market fad. It is a political reality. NATO countries are increasing their budgets, supply chains are being rebuilt, drones are transforming combat operations, and maritime security is once again taking center stage. Large corporations like Rheinmetall, specialists like TKMS, and smaller technology stocks like Volatus Aerospace are all benefiting from this. Volatus remains the most speculative stock of the trio. The Canadians still need to prove that their pipeline, software, and Mirabel production can actually generate scalable revenue. But that is precisely where the greatest potential lies. New defence contracts could quickly get the stock moving again. TKMS offers maritime NATO leverage with high long-term visibility. Rheinmetall remains the diversified German defence champion. Investors looking to capitalize on the next phase of the defence cycle have three very different options: a high-risk growth stock, a maritime defence specialist, and an established industry leader.