Two Canadian small caps with big futures in Defence spending

 

 

Investment Note

Canada's Next Defence Champions?

Why Kraken Robotics and Volatus Aerospace May Be Entering a Multi-Year Growth Cycle

August 2026

For most of the past two decades, Canada's defence technology sector has received relatively little investor attention. That landscape is changing rapidly.

The geopolitical environment has shifted dramatically. NATO members are increasing defence expenditures, Europe is rebuilding military capability, Arctic security has become a national priority, and autonomous systems have moved from experimental technologies to essential military assets.

Within this changing landscape, two Canadian companies have emerged as potential long-term winners:

• Kraken Robotics (TSX-V: PNG)
• Volatus Aerospace (TSX: FLT)

At Retire Fund, we increased our positions in both companies during June because we believe they are well positioned to become strategic suppliers within their respective markets.

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A Structural Shift in Defence Spending

Unlike previous defence spending cycles, today's procurement environment is expected to extend over many years rather than a single budget cycle.

Canada has committed to significantly increasing defence spending while NATO allies continue investing in:

• autonomous underwater systems
• military drones
• AI-enabled surveillance
• border security
• Arctic sovereignty
• naval modernization
• protection of critical subsea infrastructure

This is creating sustained demand for specialized technologies rather than traditional weapons systems alone.

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Kraken Robotics

Becoming a Strategic Maritime Technology Company

Kraken Robotics has quietly evolved from a small Canadian technology developer into one of the world's leading suppliers of advanced subsea sensing and autonomous maritime systems.

Its technology portfolio now includes:

• Synthetic Aperture Sonar (SAS)
• SeaPower subsea batteries
• autonomous launch and recovery systems
• underwater navigation systems
• subsea positioning technologies
• advanced seabed imaging
• offshore inspection services

These technologies support:

• mine countermeasure operations
• submarine detection
• underwater surveillance
• cable and pipeline inspection
• offshore energy infrastructure
• autonomous underwater vehicles

Unlike many defence technology companies that remain in the development phase, Kraken is already delivering products to military and commercial customers around the world.

Recent milestones reinforce this transition:

• approximately $327 million in combined 2026 product orders following the acquisition of Covelya Group;
• continued demand for SeaPower batteries, synthetic aperture sonar, and navigation systems;
• strategic acquisitions expanding its capabilities and international footprint.

Rather than simply selling equipment, Kraken is increasingly becoming part of the long-term modernization programs of allied navies.

That distinction matters.

Recurring participation in fleet modernization programs typically leads to longer customer relationships, greater revenue visibility, and higher valuation multiples.

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Volatus Aerospace

Building Canada's Drone Infrastructure

While Kraken dominates beneath the ocean's surface, Volatus Aerospace is positioning itself above it.

The company has assembled one of Canada's broadest autonomous aviation platforms.

Its capabilities include:

• military drone operations
• AI-enabled autonomous flight
• surveillance
• infrastructure inspection
• emergency response
• logistics
• pilot training
• aerial intelligence
• beyond-visual-line-of-sight operations

Recent developments demonstrate its strategic direction:

• introduction of a Canadian sovereign AI flight controller and autonomy stack;
• advancement to the next phase of the U.S. Drone Dominance Program;
• partnership to advance sovereign Canada–Ukraine defence technologies;
• completion of a $34.5 million bought-deal financing to support growth.

As governments increasingly emphasize sovereign drone capability, domestic manufacturers and operators may become increasingly valuable strategic assets.

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Why Partnerships Matter

One of the more encouraging developments for both companies has been growing interest from larger organizations seeking partnerships rather than direct competition.

Large defence contractors typically partner when:

• technology is differentiated
• intellectual property is difficult to replicate
• development timelines would be lengthy
• customers already trust the products
• acquisition or partnership is faster than building internally

While every partnership differs in commercial significance, sustained interest from larger industry participants can be an indicator that these companies possess capabilities that are strategically valuable.

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Potential Impact of Major Defence Contracts

The market often reacts to defence contracts based not only on their immediate revenue contribution but also on what they imply about future opportunities.

A significant contract from:

• the Canadian Armed Forces,
• the U.S. Department of Defense,
• the Royal Navy,
• Australia,
• Germany, or
• other NATO partners

could serve as validation that these companies have become trusted suppliers for long-term procurement programs.

For Kraken Robotics, such awards could reinforce its position as a core supplier of underwater autonomous technologies.

For Volatus Aerospace, they could validate its emerging role in military drone operations and autonomous aviation.

Historically, defence technology companies that transition from isolated contracts to repeat procurement programs often experience valuation expansion as investors begin pricing in future contract opportunities rather than individual awards alone.

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Long-Term Market Opportunities

Kraken Robotics

The addressable market includes:

• naval modernization
• autonomous underwater vehicles
• subsea intelligence
• offshore energy
• undersea communications protection
• mine countermeasures
• Arctic surveillance

These markets are expected to remain priorities for Western governments throughout the coming decade.

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Volatus Aerospace

The drone market continues expanding across:

• defence
• border security
• infrastructure inspection
• emergency services
• energy
• transportation
• industrial automation

Increasing adoption of AI-enabled autonomous flight systems should further expand commercial opportunities beyond military applications.

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Investment Risks

Both companies remain growth businesses.

Investors should recognize several risks:

• execution risk
• contract timing
• government procurement delays
• capital requirements
• customer concentration
• competitive technologies
• valuation volatility

Small-cap defence companies can experience significant share-price swings following both positive and negative news.

Position sizing should reflect that reality.

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Investment Outlook

While Kraken Robotics and Volatus Aerospace operate in different markets, they share several characteristics:

• proprietary technologies
• exposure to long-term defence spending
• expanding international customer bases
• growing strategic importance
• increasing visibility among larger defence contractors

Kraken Robotics appears to be the more mature investment today, supported by proven products, expanding order flow, and growing participation in naval modernization programs.

Volatus Aerospace offers higher execution risk but potentially greater upside if military drone adoption continues accelerating and the company converts its technology platform into recurring defence contracts.

As Canada, the United States, and NATO allies continue investing in autonomous defence capabilities, both companies appear well positioned to benefit from one of the most significant defence modernization cycles in decades.

For long-term investors, these businesses represent more than speculative technology companies. They may be evolving into strategic Canadian defence champions with the potential to participate in a multi-decade global expansion of autonomous maritime and aerial systems.

Recent related articles:

Kraken Robotics acquisition of Coveya and it's subsidiaries will make this a much larger, international player in the subsea robotics market!

Volatus Aerospace (FLT.t) is one of those hidden gems in the smallcap/microcap space. Here's why!

What are Field-Programmable Gate Arrays (FPGAs) and why are they important to the development of AGI?

 

Field-Programmable Gate Arrays (FPGAs) are a type of semiconductor device that can be configured by the customer or designer after manufacturing—hence the term "field-programmable." Unlike traditional processors or application-specific integrated circuits (ASICs), which are fixed in their functionality, FPGAs are highly versatile and can be reprogrammed to perform different tasks.

Key Features of FPGA Technology:

1. Programmability:

   • FPGAs consist of an array of programmable logic blocks and interconnects that can be configured to perform complex combinational functions or simple logic gates like AND, OR, and XOR. This programmability allows engineers to customize the FPGA's behavior for specific tasks, making it adaptable to different applications.

2. Parallel Processing:

   • FPGAs can execute multiple operations in parallel, making them highly efficient for tasks that require significant parallelism, such as image processing, cryptography, and machine learning. Each logic block within an FPGA can operate independently, allowing for concurrent data processing.

3. Low Latency:

   • FPGAs can perform tasks with very low latency because they process data in hardware rather than through software running on a CPU. This makes FPGAs ideal for applications where real-time processing is critical, such as high-frequency trading, signal processing, or network acceleration.

4. Reconfigurability:

   • The same FPGA can be reprogrammed multiple times, allowing it to be repurposed for different tasks as needs change. This flexibility is particularly valuable in environments where hardware needs to be updated or adapted to new algorithms without the need to design and manufacture new chips.

5. Customizability:

   • Designers can tailor FPGAs to specific workloads, optimizing performance for particular applications. For example, in AI and machine learning, FPGAs can be configured to accelerate certain types of neural network operations, providing a balance between performance and energy efficiency.

Applications of FPGA Technology:

1. Data Centers:

   • FPGAs are used in data centers for tasks like data compression, encryption, and real-time data processing. Their ability to handle custom workloads efficiently makes them valuable in cloud computing environments.

2. AI and Machine Learning:

   • In AI, FPGAs are used to accelerate specific algorithms, such as deep learning inference, by parallelizing computations and optimizing data flow. They offer a flexible and powerful solution for AI tasks where performance needs to be finely tuned.

3. Telecommunications:

   • FPGAs are employed in telecommunications infrastructure for processing high-speed data, managing network traffic, and enabling software-defined networking (SDN). Their ability to process data in real-time makes them ideal for these applications.

4. Automotive:

   • In the automotive industry, FPGAs are used in advanced driver-assistance systems (ADAS) and autonomous vehicles to process sensor data, manage real-time decision-making, and control safety-critical systems.

5. Aerospace and Defense:

   • FPGAs are widely used in aerospace and defense applications where reliability, performance, and reconfigurability are critical. They are used in radar systems, satellite communications, and secure communications.

Advantages of FPGA Technology:

• Flexibility: FPGAs can be reprogrammed as requirements evolve, making them adaptable to new applications.
• Performance: They offer high performance with low latency by executing tasks directly in hardware.
• Parallelism: FPGAs can handle multiple operations simultaneously, providing significant speed advantages for certain tasks.
• Cost-Effectiveness: For low to medium production volumes, FPGAs can be more cost-effective than designing custom ASICs, especially when the ability to reconfigure is valuable.

Disadvantages of FPGA Technology:

• Complexity: Programming FPGAs can be complex and requires specialized knowledge, making development time longer than using standard processors.
• Power Consumption: While FPGAs are efficient for certain tasks, they generally consume more power than ASICs designed for the same purpose.
• Cost: FPGAs can be more expensive than other hardware solutions, particularly in large quantities, due to their general-purpose nature and reconfigurability.

FPGAs are powerful, flexible devices that offer significant advantages in applications requiring custom processing capabilities, real-time performance, and parallelism. Their versatility makes them valuable across a wide range of industries, from data centers and AI to telecommunications and automotive systems.

Leading the race in this new technology: 

Xilinx (Now part of AMD)

Field-Programmable Gate Arrays (FPGAs) play a significant role in the development of Artificial General Intelligence (AGI) due to their unique capabilities, which are crucial for advancing complex AI systems. Here’s why FPGAs are important in this context:

1. Customization for Specific AI Workloads

• Tailored Processing: AGI development often involves experimenting with different algorithms and models, each requiring specific computational resources. FPGAs can be reconfigured to optimize for these varied tasks, allowing developers to fine-tune the hardware to match the specific needs of the AI workload. This customization enables more efficient processing, which is critical for advancing AGI, where performance optimization is key.

2. Parallel Processing Capabilities

• Handling Complex Calculations: AGI requires the ability to process vast amounts of data simultaneously, particularly when dealing with tasks like natural language processing, vision, and decision-making. FPGAs excel in parallel processing, allowing multiple operations to be carried out concurrently. This capability is vital for AGI systems, which need to manage and integrate information from multiple sources quickly and efficiently.

3. Low Latency for Real-Time Decision Making

• Real-Time Processing: AGI systems aim to achieve human-like intelligence, which requires real-time decision-making. FPGAs can process data with minimal latency, making them ideal for applications where immediate responses are crucial. In AGI, where the ability to react to new data or changes in the environment quickly is essential, FPGAs provide the necessary speed and responsiveness.

4. Energy Efficiency

• Optimizing Power Consumption: Developing AGI involves running highly complex and resource-intensive models, which can consume significant amounts of power. FPGAs can be configured to execute tasks in a more power-efficient manner compared to general-purpose CPUs or GPUs. This efficiency is important in reducing the energy footprint of AGI systems, making them more sustainable and scalable.

5. Flexibility and Reconfigurability

• Adapting to Evolving Requirements: AGI research is highly experimental, with frequent changes in algorithms and approaches. FPGAs can be reprogrammed as new algorithms are developed, allowing researchers to quickly adapt and test new ideas without needing to design new hardware. This flexibility accelerates the development cycle and supports the iterative nature of AGI research.

6. Accelerating Prototyping and Deployment

• Rapid Innovation: In the pursuit of AGI, there’s a need for rapid prototyping to test new concepts and models. FPGAs allow developers to quickly implement and evaluate these prototypes in hardware, speeding up the innovation process. Once a successful prototype is validated, the same FPGA can be reconfigured or scaled for deployment, enabling faster transitions from research to real-world applications.

7. Hybrid Computing Solutions

• Integration with CPUs and GPUs: FPGAs can be used alongside traditional CPUs and GPUs to create hybrid computing environments that leverage the strengths of each type of hardware. In AGI development, this allows for more balanced and efficient use of resources, where FPGAs handle specific tasks (like low-latency operations or custom computations), while CPUs and GPUs manage other aspects of the workload. This hybrid approach can lead to more powerful and versatile AGI systems.

8. Security and Control

• Enhanced Security Features: FPGAs can be used to implement custom security protocols directly in hardware, providing an extra layer of protection for AGI systems. This is particularly important as AGI systems become more integrated into critical applications where security is paramount. The ability to control and secure the processing environment at the hardware level is a significant advantage in AGI development.

9. Scalability

• Adapting to Growing Computational Needs: As AGI models grow in complexity and size, the computational demands will increase. FPGAs can scale with these needs by being reconfigured or combined with other FPGAs to provide the necessary processing power. This scalability ensures that AGI development is not constrained by hardware limitations.

In summary, FPGAs are important to the development of AGI because they provide the flexibility, performance, and efficiency needed to tackle the highly complex and evolving challenges in this field. Their ability to be customized, reconfigured, and integrated into larger hybrid systems makes them invaluable tools in the journey toward achieving AGI.

Leading the race in this new technology: 

Xilinx (Now part of AMD)

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We bought Enovix today ($ENVX on Nasdaq) and here some reasons why!

 Enovix has developed a new battery technology, specifically a 3D Silicon Lithium-ion battery. This technology differs from traditional lithium-ion batteries by utilizing a 3D architecture with a silicon anode, which allows for higher energy density, improved safety, and longer battery life. 

The company's innovative approach enables more efficient use of space within the battery, potentially leading to smaller, lighter, and more powerful batteries.

Impact on the Battery Market:

1. Higher Energy Density: Enovix's technology could significantly increase the energy density of batteries, making them more suitable for high-demand applications like electric vehicles (EVs), consumer electronics, and wearable devices. This could lead to longer-lasting batteries with faster charging times.

2. Improved Safety: The silicon anode design inherently improves battery safety by reducing the risk of overheating and thermal runaway, which are common concerns with traditional lithium-ion batteries. This could make Enovix's batteries more attractive for use in applications where safety is critical, such as aerospace or medical devices.

3. Market Disruption: If Enovix can scale its production and reduce costs, its technology could disrupt the existing battery market by challenging incumbent technologies and pushing other companies to innovate. This could lead to more competition, potentially driving down prices and accelerating advancements in battery technology.

4. Environmental Impact: By increasing the efficiency and lifespan of batteries, Enovix's technology could contribute to a reduction in battery waste and the environmental footprint of battery production and disposal.

Overall, Enovix's new battery technology has the potential to impact various sectors by providing more efficient, safer, and longer-lasting energy storage solutions, potentially reshaping the competitive landscape of the battery industry.

The impact of Enovix's new battery technology on its share price could be influenced by several factors:

1. Market Adoption and Demand: If Enovix's technology gains traction in high-growth sectors such as electric vehicles, consumer electronics, or energy storage, this could drive significant demand for its products. Successful commercial adoption could lead to increased revenue and profitability, positively impacting the stock price.

2. Partnerships and Contracts: Securing strategic partnerships with major players in industries like automotive, electronics, or energy could boost investor confidence and lead to an appreciation in the stock price. Announcements of large contracts or collaborations could serve as catalysts for upward movement.

3. Production Scaling and Cost Management: The ability to scale production efficiently and manage costs will be critical. If Enovix can demonstrate that it can manufacture its batteries at a competitive cost while maintaining high quality, this would likely attract more investors, positively affecting the stock price.

4. Technological Validation: Positive results from testing and validation of the technology, especially if independently verified or endorsed by industry leaders, could lead to a surge in investor interest and a corresponding rise in the stock price.

5. Market Sentiment and Speculation: Investor sentiment plays a significant role in stock price movements. If the market perceives Enovix as a leader in next-generation battery technology, speculation and future growth potential could drive the stock price higher. Conversely, any delays, technical setbacks, or market skepticism could negatively impact the stock.

6. Broader Market Conditions: The stock price of Enovix will also be influenced by broader market conditions, including economic trends, investor appetite for growth stocks, and sector-specific dynamics in the technology and energy markets.

Enovix has formed several strategic partnerships and collaborations that leverage its innovative battery technology. While some of these partnerships are well-publicized, others may be more speculative or emerging as the technology gains traction.

Companies that have Partnered with Enovix:

1. YBS International: Enovix has partnered with YBS International to develop and scale the production of its batteries. YBS International is known for its expertise in manufacturing and quality control, which is critical for scaling up production of new battery technologies.

2. Brigade Electronics: Brigade, a global leader in safety products and solutions for vehicles, has collaborated with Enovix to explore the use of their advanced batteries in next-generation safety devices for the automotive industry.

3. Rogers Corporation: Enovix has also partnered with Rogers Corporation, a materials technology company, to optimize materials used in its 3D Silicon Lithium-ion batteries, enhancing performance and manufacturability.

Companies that Might Benefit Most from Enovix's Technology:

1. Tesla and Other EV Manufacturers: The electric vehicle industry could greatly benefit from Enovix's high-energy-density batteries. Companies like Tesla, Rivian, Lucid Motors, and traditional automakers transitioning to EVs could see performance and range improvements, making their vehicles more competitive.

2. Apple and Consumer Electronics Companies: Companies in the consumer electronics space, such as Apple, Samsung, and others, could benefit from Enovix's batteries in smartphones, wearables, and laptops, offering longer battery life and faster charging times.

3. Energy Storage Companies: Companies focused on renewable energy storage, such as NextEra Energy and Tesla (with its Powerwall), might find Enovix's technology useful for developing more efficient and compact energy storage solutions, which are crucial for the integration of renewable energy sources.

4. Medical Device Manufacturers: Companies like Medtronic and Boston Scientific, which develop portable or implantable medical devices, could use Enovix's batteries to extend the life and reliability of their products, improving patient outcomes.

5. Aerospace and Defense: Aerospace and defense companies such as Lockheed Martin and Boeing could benefit from the improved safety and energy density of Enovix’s batteries, which could be used in various applications, including drones, satellites, and other advanced systems.

Potential Future Partnerships:

Enovix's technology could attract partnerships with major players in these industries as they seek to integrate more advanced, reliable, and efficient energy solutions into their products. If Enovix can demonstrate the scalability and cost-effectiveness of its batteries, it's likely to see increased interest from a broad range of industries, further enhancing its market position and driving value for its partners.

If Enovix's technology proves to be a game-changer, its stock price could experience significant appreciation as investors position themselves for potential long-term growth. However, it's also essential to consider the risks and volatility associated with emerging technology companies.

Editor notes:

500 years ago, Voltaire said that, "the rich require many of the poor"!

If he were alive today he might say, "the rich require many robots"

It goes without saying that, "Robots require many batteries"

January 20, 2025

Androids, Humanoid Robots, whatever the label, they are coming. Now, Who is leading the charge into this lucrative, futuristic market?