Last weekend, the U.S. and Israel launched widespread strikes on Iran, killing Supreme Leader Ayatollah Ali Khamenei after his 36-year rule. Iran struck back, hitting U.S. bases in the Middle East and killing five American troops, with the current total at six. President Trump warned the war could go on for four to five weeks, but added it could last “far longer.”
Markets reacted fast. Lockheed Martin (LMT) rose 2.83% on Monday. Northrop Grumman (NOC) jumped 6%. In Europe's STOXX 600, BAE Systems (BAESY)climbed around 6%, and Hensoldt rose 5%, according to CNBC.
But before the missiles flew, Cathie Wood had already made her move.
What Wood Bought and Why It Matters
Last week, ARK Invest (ARKK) added 252,000 shares of Kratos Defense & Security Solutions (KTOS) across its ARKK, ARKQ, and ARKX exchange-traded funds, worth roughly $21 million. The purchase reversed ARK's selling trend from the prior week.
At the same time, ARK trimmed Elbit Systems (ESLT) by about $3 million and cut 37,000 shares of BWX Technologies (BWXT), valued at around $7.6 million. The rotation is clear: ARK is moving away from traditional aerospace suppliers and toward U.S.-based unmanned systems and defense tech.
Kratos makes jet-powered drones, hypersonic vehicles, rocket systems, satellite command-and-control software, and microwave electronics used in missiles, radar, and missile defense systems. Its customers include the U.S. Department of Defense, intelligence agencies, and international governments.
Kratos Had a Breakout Quarter
The timing of Wood's buy comes right after Kratos posted its strongest results in years.
In the fourth quarter of 2025, revenues hit $345.1 million, well above the company's own guidance of $320 million to $330 million. That represented 20% year-over-year organic revenue growth. Backlog hit a record $1.573 billion, and the opportunity pipeline reached a record $13.7 billion.
"The opportunity set for Kratos has never been stronger," CEO Eric DeMarco said on the call.
For full-year 2026, Kratos guided for revenues of $1.595 billion to $1.675 billion, an organic growth rate of 12.7% to 18.5% over 2025.
The Drone and Hypersonic Angle
If there's one reason Wood may have pulled the trigger on Kratos, it's the company's drone and hypersonic business, both of which are directly relevant to the kind of war now unfolding in the Middle East.
Kratos' Valkyrie drone was recently selected for the Marine Corps' first collaborative combat aircraft (CCA) program, partnered with Northrop Grumman. The company is ramping production from about eight Valkyries per year to a target of 40 per year by the end of 2028.
On the hypersonic side, DeMarco said the company expects to roughly double hypersonic revenues in 2026 to approximately $400 million, then grow another 75% in 2027 to roughly $700 million. Kratos has 120 solid rocket motors on order, with deliveries expected to begin in the third quarter of this year.
"The hypersonic franchise... will drive our growth trajectory and our profitability for the foreseeable future," DeMarco said on the earnings call.
The company also supplies microwave electronics, critical components in missiles and radar systems, to Iron Dome, Arrow, and multiple classified programs. As the Middle East war deepens, demand for those systems tends to go up.
A Defense Budget Tailwind
Beyond the immediate crisis, the broader defense spending picture is moving in Kratos' favor.
Analysts forecast KTOS to increase sales from $1.35 billion in 2025 to $3.2 billion in 2030. In this period, adjusted earnings are forecast to expand from $0.55 per share to $2.38 per share.
If KTOS stock is priced at 40x forward earnings, which is below the five-year average of 53x, it should gain 15% over the next three years. In the last three years, KTOS stock has risen over 500% and trades at a lofty multiple in 2026.
Out of the 21 analysts covering KTOS stock, 14 recommend “Strong Buy”, one recommends “Moderate Buy”, and six recommend “Hold”. The average Kratos Defense stock price target is $117.80, so the stock's current price can climb 31.6% from here.
The 2026 National Defense Authorization Act has been signed. The fiscal year 2026 Defense Appropriations Bill is also now law. And proposals are already circulating in Washington for an additional $450 billion in defense spending through a second reconciliation bill.
"We now have a $1 trillion annual defense spend that is expected to increase for the foreseeable future," DeMarco said.
Kratos, which reinvests its capital into building defense capabilities rather than paying dividends or buying back stock, is positioning itself as one of the few companies that can deliver affordable, battle-ready hardware at scale.
On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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