Here's Why Kratos Defense & Security Solutions (KTOS) Soared in Q2

TimesSquare Capital Management, an equity investment management company, released its “U.S. Small Cap Growth Strategy” second-quarter 2025 investor letter. A copy of the letter can be downloaded here. During the quarter, the fund returned 11.28% (gross) and 11.02% (net), compared to the Russell 2000 Growth Index by 11.97%. Equities posted double-digit returns in the second quarter as global economic activity measures lifted. In addition, please check the fund’s top five holdings to know its best picks in 2025.

In its second-quarter 2025 investor letter, TimesSquare Capital Small Cap Growth Strategy highlighted stocks such as Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS). Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) is a technology company that offers mission-critical products, services, and solutions. The one-month return of Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) was -1.21%, and its shares gained 200.89% of their value over the last 52 weeks. On September 11, 2025, Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) stock closed at $67.67 per share, with a market capitalization of $11.422 billion.

TimesSquare Capital U.S. Focus Growth Strategy  stated the following regarding Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) in its second quarter 2025 investor letter:

"Many of our Industrial positions provide necessary business-to-business operational services, highly technical components, equipment enabling automation & efficiency improvements, or essential infrastructure services. Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) supplies technology products, systems, and software for defense, national security, and commercial markets. Their fiscal second quarter exceeded expectations for earnings and profit margins. While investors were initially cautious on the potential impact of DOGE on the defense budget, we are now seeing augmented defense spending with a major shift towards next-generation priorities such as hypersonic, missile defense, UAVs, and space. As such, Kratos is well placed. We trimmed Kratos on the strength of its 62% ascent."

Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 33 hedge fund portfolios held Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) at the end of the second quarter, which was 17 in the previous quarter. While we acknowledge the potential of Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

In another article, we covered Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) and shared the list of best performing defense stocks to buy. In addition, please check out our hedge fund investor letters Q2 2025 page for more investor letters from hedge funds and other leading investors.

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Disclosure: None. This article is originally published at Insider Monkey.