What North American Investors Are Missing in Israeli Defense
Most North American portfolio managers & investors couldn't name a single Israeli defense company trading below $500 million in market cap. That's not a criticism. It's just a fact, and it's exactly the gap this report is trying to close.
Israel's defense industry gets covered when Iron Dome intercepts a missile barrage or when a major export deal gets announced. What doesn't get covered is the ecosystem underneath it: the 150-plus active defense companies, the 18 publicly traded small and mid-cap names spread across TASE, NASDAQ, and ASX, and the capital markets activity that has been accelerating quietly for the past 18 months.
Our Israel-based Managing Director, Blair Carey, has spent several months building a comprehensive picture of this sector. He’s attended all the conferences and spoken to numerous investors and operators. and what he discovered was a market that is simultaneously at its most commercially successful point in history and almost entirely invisible to the institutional investor community outside Israel.
The top-line numbers are well known by now. Defense exports hit a record $14.8 billion in 2024, the fourth consecutive record year. The Big Three, Elbit, IAI, and Rafael, are sitting on a combined backlog that exceeds $75 billion. IAI and Rafael are both planning public listings on the Tel Aviv Exchange, which would rank among the largest IPOs in Israeli capital markets history if they close. Elbit's share price appreciated 133% in 2025 alone.
What is less discussed is what is happening below that level with companies under 500M of market cap.
Smart Shooter (TLV:SMSH) went public on TASE in March at a 2.4x oversubscribed offering. Elsight (ASX:ELS), which trades on the ASX with its core operations in Israel, appreciated over 1,600% from its 52-week low. ARYT Industries (TLV:ARYT), through its subsidiary Reshef Technologies, grew revenue by more than 300% in a single year on the back of electronic fuze contracts with the IDF and North American buyers. Aerodrome Group, which pivoted from aviation training to loitering munitions, saw its share price move over 1,000% in under four months.
Some of that price action is speculative but most reflects genuine earnings power. So the job of the analyst is to tell the difference, and that is what the company profiles in this report are built to do.
There is a broader structural point worth making. Israel's defense industry has always been export-centric. Companies in this sector typically derive 70 to 80% of revenues from international sales, a ratio you don't see anywhere else in global defense. That export orientation, combined with the post-October 7 surge in domestic procurement, has created a demand environment that is genuinely unprecedented. Europe has become the dominant buyer, capturing 54% of 2024 exports as NATO allies accelerate rearmament. India, which historically accounted for the largest share of cumulative Israeli arms exports, is in active negotiation on a potential $8 to $10 billion package.
The question for investors is not whether the sector is growing. It clearly is. The question is which companies have the earnings durability, the management quality, and the balance sheet to convert this environment into long-term shareholder value. That answer looks very different depending on whether you are looking at a profitable manufacturer with a 17x P/E and a 7% dividend yield or a loss-making software company trading at a valuation that prices in several years of contracts that haven't been signed yet.
Section two of this report provides a snapshot and overview of 18 small and midcap companies. Every profile includes financial data sourced from company filings, a look at key executives and ownership structure, recent news, and a straightforward assessment of opportunities and risks.
We have also classified each company as dual-use or defense-focused, because that distinction matters more than most investors appreciate. The companies most likely to attract durable institutional capital are those that can serve both defense and commercial markets. The ones that cannot will eventually be acquired or marginalized.
One thing that struck us in the research process was how much of market cap is being priced on Israeli retail sentiment rather than international institutional analysis. The TASE defense index has been one of the strongest performing segments in any market over the past 18 months, but English-language coverage of most of these names barely exists. That information asymmetry is not permanent.
The report is available to download free at https://i3-capital.com/research.
In addition, on April 28, we are hosting a live webinar with three companies operating in this space: T3 Defense, Wiserly Labs and Flyworks. Registration link here.
Questions about specific companies or the sector generally, reach Blair directly at blair@i3-capital.com.
Blair Carey, CFA is Managing Director of Research at I3 Capital Group. I3 Capital Group receives fees from companies listed under the Clients section of its website for capital markets advisory, investor relations, and related services. This report is for informational purposes only and does not constitute investment advice. Please review the full disclosures included in the report.
