Kratos Defense & Security Solutions (KTOS) is a very speculative stock, but I think it has the “oomph” to go ballistic. This $2.6 billion company makes everything from drones to hypersonic rockets, explains Sean Brodrick, editor of Supercycle Investor.

It also provides engines for Boeing’s Joint Attack Munitions Kit, a kit that turns dumb bombs into smart bombs. Importantly for us, Kratos is building AI fighter jets for the US military.  

Kratos Defense is the creator of the XQ-58A Valkyrie fighter jet. Kratos Defense tapped artificial intelligence developer Shield AI to integrate an AI aviator into the Valkyrie. And sure enough, Valkyrie successfully demonstrated AI-enabled, high-performance, uncrewed aerial vehicle functions. 

Business is sonic-booming for Kratos. Q3 revenues rose 20% year over year, beating estimates, while quarterly earnings rose 50%. For the full year, earnings are projected to rise 14%…and then another 30% in 2024.

There are two things holding this stock back:

First, milestones on a bunch of projects shifted from last year to this year. So, that’s in the rearview mirror. 

Second, the market is wrestling with a nagging fear that there will be a fight in Congress over the budget and therefore defense spending. Investors shouldn’t worry too much. Defense spending is very popular with Republicans AND Democrats.  

In fact, within the last month, Kratos Defense landed another fat government contract, this one for $22.9 million to make modifications to the XQ-58A. The US government is increasing its budget for drones, and Kratos Defense’s fortunes should rise with it.  

Here’s the chart …

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You can see Kratos Defense is stepping higher along its 20-day moving average. This could hit $35 per share next year — maybe higher. 

Recommended Action: Buy KTOS.

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