Canada is ramping up defense outlays after years of underinvestment, stepping up to meet its NATO obligations and fueling a broader upturn across the domestic defense tech sector. The country has hit NATO’s 2% GDP defense spending target ahead of schedule, with total defense budget set to surpass CAD 50 billion for the 2026/2027 fiscal year. Ottawa has also laid out a long-term roadmap to lift defense spending to 5% of GDP by 2035, kicking off a multi-year spending expansion that will ripple through the economy and benefit local defense contractors.
Standing out among beneficiaries is subsea technology specialist Kraken Robotics (TSXV:PNG), a growth stock well-positioned to capitalize on rising global naval modernization.
NATO navies are phasing out aging mine-hunting vessels and shifting toward unmanned marine systems, a trend that reshapes underwater warfare and drives robust demand for Kraken’s core products: advanced sonar sensors, pressure-resistant batteries and autonomous underwater robotics. The firm operates across national security, maritime trade and subsea energy, with diversified end markets strengthening its growth resilience. Its technical capabilities gained real-world validation this May, when Kraken sealed a deal with Turkey’s SEFINE SISAM to integrate its KATFISH systems onto autonomous surface vessels, solidifying its foothold in overseas markets.
The company’s financial trajectory has delivered steady results. A hypothetical CAD 100,000 investment in late 2024 has swelled to CAD 295,000 amid rising industry attention. In 2025, total revenue rose 12% year-over-year, while high-margin service revenue jumped 63.2%. Operating cash flow turned positive last year, laying a solid operational foundation. Excluding upcoming acquisitions, management forecasts organic revenue will surge 61.8% to 71.6% in 2026, hitting CAD 175 million.
A transformative CAD 615 million takeover of Covelya Group, slated to close in the second quarter, acts as a major growth catalyst. Kraken has raised over CAD 400 million to fund the accretive deal. Covelya posted CAD 365 million in profitable revenue in 2025 — three times Kraken’s top line — and boasts a 24% compound annual growth rate since 2023. Post-deal, Kraken will run dual defense and commercial divisions serving more than 700 clients, evolving into a global subsea tech player.
On the stock front, PNG has gained 13.9% year-to-date but pulled back 15.5% in the past month, creating a timely entry opportunity for investors. It trades at a forward P/E of 40, with a PEG ratio of 0.9 pointing to undervaluation relative to its growth profile. The upcoming Q1 earnings release on May 28 will serve as an immediate near-term catalyst.
Risks remain, however. Rapid capacity expansion compressed its operating margin from 15.1% to 8.4% in 2025. Sales are concentrated, with one single client accounting for 45% of revenue, while Asia-Pacific contributes 49.2% of total sales versus just 24.5% from North America. Investors also need to monitor integration risks surrounding the large Covelya acquisition.
Having evolved from a speculative small-cap to a solid mid-cap player, Kraken stands to ride Canada’s defense build-up and NATO’s naval upgrade cycle. For long-term investors, it remains a compelling growth pick through 2026 and beyond.
