The Iran conflict may finally be on its way to ending, but that does not change the future of defense and industrial spending in the United States. Modern conflicts -- from Ukraine to Venezuela to the Middle East -- have underscored the need for modern tactical capabilities, especially in unmanned operations.
A growing focus is being placed on battery-powered underwater drones, both for the United States' fleet and for its allies'. One fast-growing industrial stock poised to benefit from these new fleets is Kraken Robotics (KRKNF +0.27%). Here's why the underwater battery maker is a once-in-a-decade industrial stock.
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Growing tailwinds for battery power
Underwater drones built by defense contractors require large numbers of specialized batteries that can operate reliably in harsh ocean environments. Kraken Robotics is the leading battery supplier for underwater drones and other vessels, with minimal competition.
As more contracts are won from companies like Anduril to build these underwater drones, more orders are placed with Kraken Robotics. Last quarter, Kraken's revenue grew 35% year over year to $21.6 million, while new orders year to date have totaled $97 million as of the end of May. Orders outpacing revenue are a strong sign of long-term demand for Kraken's batteries.
We are still in the very early days of defense spending on underwater drones. Right now, projects from countries like the United States and Australia are still in the experimental and testing phases, at least in most circumstances. In the future, they may want hundreds or even thousands of small underwater drones operating in strategy areas globally, providing a decade-long tailwind for Kraken's business.
OTC: KRKNF
Key Data Points
A reasonable price and attractive acquisition
Kraken's stock is now in a 33% drawdown, providing investors a better entry price after shares went on a massive 1,000% run over the last five years. It also just announced the acquisition of the Covelya Group, another defense-focused industrial stock that sells sensors for underwater equipment, such as drones.
The timing of the acquisition looks smart. Covelya Group is being acquired for $615 million in an all-cash deal, funded by Kraken's prior equity raises and its soaring stock price. Covelya Group generated around $262 million in revenue in 2025, compared to around $100 million for Kraken Robotics.
This is not only a strategic acquisition to bundle sales to defense contractors, but also an attractive price for Kraken to pay to rapidly scale up its revenue. The combined businesses were projected to generate $365 million in revenue last year, with the potential for more growth in the years ahead, driven by the underwater drone market.
Compared to a market cap of $2 billion, the combined Kraken Robotics and Covelya Group business looks like an attractive stock to buy and hold for the next decade.
