KeyBanc Eyes Space & Defense Sector for Major Growth
Analysts initiate bullish coverage, citing AI-driven drone warfare and defense modernization as key catalysts, with price targets implying 20-30% upside for select stocks.
Analysts at KeyBanc have turned a spotlight on the space and defense technology sector, initiating coverage with a decidedly bullish outlook that forecasts substantial growth. The firm's new research points to a confluence of powerful trends—including a widespread defense modernization cycle, the critical role of AI in autonomous systems, and a strategic "reshoring" of the space industry—as drivers for the sector's potential surge.
The investment bank launched coverage on six companies, assigning optimistic 'Overweight' ratings to four key players and setting price targets that suggest significant near-term upside. Among the favored names are AeroVironment (NASDAQ: AVAV), a specialist in unmanned aerial vehicles (UAVs), which received a $285 price target. Kratos Defense & Security Solutions (NASDAQ: KTOS), known for its high-performance drones and defense electronics, was given a $90 price target, implying roughly 20% upside from its current trading level. Other notable initiations include Kaman (KRMN) with an $80 target and lunar exploration firm Intuitive Machines (NASDAQ: LUNR) with a $20 target.
Shares across the sector reacted positively to the news. Kratos shares jumped nearly 4.5% to trade around $74.60, while drone-maker AeroVironment rose 3.9% to $239.80. Intuitive Machines saw the most dramatic move, surging over 34% to $14.58 as investors rallied behind the bullish call.
KeyBanc's thesis is anchored in the accelerating integration of advanced technology in modern warfare and space exploration. The analysis, highlighted by Benzinga, points to a global upgrade cycle for military hardware, where legacy systems are being replaced by smarter, more autonomous platforms. This trend directly benefits companies like AeroVironment, whose Switchblade and Puma drones are at the forefront of the UAV market. The global military drone market, a core area for both AVAV and Kratos, is projected to expand from $24.37 billion in 2025 to over $51 billion by 2032, according to recent market intelligence reports.
The focus on artificial intelligence is a critical component of the growth narrative. As noted in the initiation, the ability of AI to process data at the edge—on drones and other vehicles in real-time—is a revolutionary step for tactical defense. This aligns with broader sector trends, as the U.S. Department of Defense accelerates efforts to expand its arsenal of small, intelligent unmanned systems.
Beyond terrestrial defense, KeyBanc identified the reshoring of the U.S. space industry as a durable, long-term tailwind. The move to create a more resilient domestic supply chain for space and satellite manufacturing is expected to channel significant investment toward companies positioned to lead in this arena. KeyBanc's initiation on AeroVironment with an Overweight rating underscores this dual exposure to both defense modernization and the expanding space economy.
This fresh analyst coverage comes as the aerospace and defense industry shows robust growth throughout the latter half of 2025. According to a Deloitte industry outlook, the sector has been buoyed by increased defense budgets and a broad digital transformation. KeyBanc's report suggests that investors are now identifying the specific companies poised to capture the lion's share of this new technology-focused spending, signaling a potential new phase of growth for the market's most innovative defense contractors.