2 Defense Stocks Riding 2025’s Massive Momentum Wave

Key Points

• In 2025, momentum investing is beating value by a wide margin.
• Kratos and Karman are two of the highest-flying defense stocks in the market, driven considerably by momentum trading.
• However, with their forward P/E ratios well above 100x, can their rallies continue? 

To this day, an age-old battle between stock market investing strategies wages: value versus momentum. Value investing is a tactic famously employed by legends like Warren Buffett. It seeks to identify stocks with depressed valuations, often due to disruptions perceived as temporary.

On the other hand, many investors deploy a momentum strategy. It relies on the idea that stocks that have risen substantially in a short period tend to continue rising. In 2025, momentum has been the clear winner among these competing ideologies. The Invesco S&P 500 Momentum ETF NYSEARCA: SPMO has returned 27% year-to-date. Meanwhile, the iShares S&P 500 Value ETF NYSEARCA: IVE has returned only around 10%.

Riding the momentum wave are two highly interesting defense stocks, with each soaring more than 100% in 2025. Below, we’ll provide perspective on what the future may hold for these two names, with their forward price-to-earnings (P/E) ratios well above 100x.

KTOS: Unmanned Jet Stock Keeps Flying to New Heights

First up is Kratos Defense and Security Solutions NASDAQ: KTOS. From a business perspective, this company is compelling. It is leading the charge when it comes to futuristic defense technologies, such as unmanned and even autonomous jet fighters. Through August, Kratos’ shares gained approximately 150% in 2025, putting its forward P/E ratio at around 104x. Such a high figure immediately elicits fears of overvaluation among many investors. However, the stock has done anything but fall since then.

From the end of August to now, the stock has gained another 46%, placing its forward P/E at a massive 149x. Surely, not all of Kratos’s gains over the past month or so have come purely due to momentum. It has released multiple pieces of positive news. This includes joining the S&P MidCap 400 Index and winning a drone manufacturing contract of unspecified value. Still, it's hard to say these announcements warrant such a large increase in Kratos’s share price.

Some warning signs are flashing around Kratos. The stock’s relative strength index (RSI) has surged well above 70 to around 85, indicating that it may be considerably overbought. Additionally, high-profile investor Cathie Wood sold around 9% of the ARK Space Exploration & Innovation ETF’s BATS: ARKX allocation to Kratos in September. Still, Kratos remains by far the fund's largest holding, making up around 13.6% of its portfolio. Lastly, the MarketBeat consensus price target on Kratos of $63.50 implies around 34% downside in shares.

KRMN’s Forward P/E Blasts Past 140x

Next is Karman NYSE: KRMN, another business with many things to like. It is a high-margin, vertically integrated supplier of mission-critical components to prime defense contractors. Karman went public in February and gained an extremely impressive 78% by the end of August.

By then, the stock was trading at around a 101x forward P/E ratio. Just like Kratos, Karman shares haven’t looked back since. From the end of August to now, the stock has gained another 36%, putting its forward P/E ratio at around 140x. Much of this came due to Raymond James placing a $100 price target on the stock, which sent shares up 17% in one day.

Still, this target is an outlier, standing in significant contrast to the MarketBeat consensus target of $68, which implies around 7% downside in shares. Karman itself has not made any press releases over the past month. However, analysts at Evercore ISI did raise their price target to $75, implying a slight amount of upside. Karman’s RSI is also a concern. It sits at 76 and has been above the overbought level of 70 for around a month.

KTOS & KRMN: Bearish Signals Emerge, But Their Risky Rallies Could Continue

Overall, there are some notable red flags surrounding Kratos and Karman shares. At the very least, they provide a sense that investors may want to consider taking some money off the table. Still, if Palantir Technologies NASDAQ: PLTR is any indication, it seems hard to bet against high-flying defense stocks right now. Palantir has soared to an astronomical 233x forward P/E, over doubling in price since the figure hit 150x in April. Ultimately, there remains a significant chance that Kratos and Karman could keep rising. But these two names are clearly not without substantial risk at current prices. They will need to show excellent execution in their upcoming earnings releases to justify their valuations.