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Many defense stocks have tumbled following the midterm election results in the United States, with Democrats potentially poised to cap defense spending. Some programs will still grow regardless of which political party is in power.
One such program is undersea drones and autonomous systems. The U.S. military and its allies want to deploy unmanned systems to prevent adversaries from disrupting global trade, as happened in the Strait of Hormuz. Kraken Robotics (OTC:KRKNF) is one company benefiting from increased spending on undersea drones.
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Here's why orders keep growing at an intense pace, and what $1,000 invested in Kraken Robotics stock today might be worth at the end of next year if undersea drone orders keep doubling.
Kraken is a maker of sonar systems and pressure-tolerant underwater batteries that are used in vehicles such as underwater drones. Underwater drones are uncrewed vehicles used to monitor maritime assets, either military or commercial.
Many defense contractors are developing underwater drone programs as military budgets grow and are dedicated to these defense systems. One such contractor is Anduril, which is aggressively building multiple unmanned underwater systems and is thought to be a large Kraken customer.
Since these are secretive military contracts, it is unclear exactly who Kraken's customers are. However, it is clear that they are spending more on Kraken's battery and sensing equipment each year. Orders through Nov. 5 this year totaled 457 million Canadian dollars, with CA$102 million in orders since Aug. 27, when the last update was made. This should lead to nice revenue growth for Kraken Robotics in the next year.
Part of the boost in new orders came from Kraken's 2026 merger with the Covelya Group, a similar supplier focused on navigation, sonar detection, communications, and other maritime products used extensively in military applications.
Of the $102 million in new orders received since Aug. 27, around half came from the Covelya Group as Kraken sells more contracts for underwater drones. With half a year of contributions from Covelya Group, Kraken expects 2026 revenue to exceed $300 million, with well over $500 million in revenue next year if this order book continues to grow and get fulfilled.
This would be a massive boost over 2025, when Kraken's revenue (excluding contributions from Covelya Group) was $102 million.
After zooming higher in late 2025 and early 2026, Kraken Robotics stock has gone into a 67% drawdown. It now trades at a market cap of CA$1 billion, with revenue expected at CA$300 million this year.
The company is not profitable at the moment, but that is because it is integrating the recent acquisition and making major investments to boost its manufacturing output. Last quarter, it had a gross margin of approximately 60%, which should be sustainable given Kraken's unique position as one of the few suppliers of these subsea components, as well as its high-margin services and software components for sea imaging and mapping.
A 60% gross margin at scale could lead to a 20% profit margin. If revenue can reach at least CA$500 million in 2027 on the back of this soaring order book, that is CA$100 million in earnings, or a forward price-to-earnings ratio (P/E) of 10 for a fast-growing business. I think the stock would trade at a much higher earnings ratio, meaning a $1,000 investment in Kraken Robotics today could be worth double or more by the end of 2027, with further gains expected in the years ahead as it grows alongside the underwater drone market.
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Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Kraken Robotics. The Motley Fool has a disclosure policy.
Here's What a $1,000 Investment in Kraken Robotics Will Be Worth by the End of 2027 if Undersea Drone Orders Keep Doubling was originally published by The Motley Fool
