Mercury Systems, Inc. (MRCY): A Bull Case Theory

We came across a bullish thesis on Mercury Systems, Inc. on Value investing subreddit by  Natural_West7949. In this article, we will summarize the bulls’ thesis on MRCY. Mercury Systems, Inc.'s share was trading at $98.29 as of January 29th. MRCY’s forward P/E was 149.25 according to Yahoo Finance.

Mercury Systems (MRCY) operates at the intersection of AI compute and defense, specializing in customizing and ruggedizing advanced semiconductors from suppliers like Nvidia and AMD so they can function reliably in extreme environments such as space, military aircraft, and defense systems.

This positioning makes Mercury a key enabler of AI adoption across defense and aerospace platforms, where performance, durability, and security are mission-critical. The company’s backlog has reached a record $1.4 billion and continues to grow, reflecting strong long-term demand visibility, particularly as U.S. and allied defense budgets prioritize AI-enabled systems, sensors, and edge computing.

A central element of the bull case is that Mercury is nearing the end of a difficult transition period. Prior to 2023, the company signed several fixed-price contracts that proved unprofitable as costs rose, significantly pressuring margins and earnings. As these legacy contracts are worked through, profitability is expected to improve meaningfully, setting the stage for a potential turnaround. Forward-looking indicators support this view, with consensus expectations pointing to a return to profitable growth next year and a forward PEG ratio around 1.28, suggesting earnings growth that is not fully disconnected from valuation.

However, risks remain. The stock has already rallied roughly 76% year-to-date, raising the possibility that a portion of the turnaround optimism is priced in. In addition, Mercury faces competition from established defense electronics and manufacturing players such as Curtiss-Wright, Sanmina, and Elbit Systems, all targeting similar niches within ruggedized AI and defense computing.

Even so, if execution improves and margin recovery materializes as legacy contracts roll off, Mercury offers a leveraged way to gain exposure to the long-term AI-in-defense theme within the small-cap defense universe, with a risk-reward profile that remains compelling despite the recent run-up.

Previously we covered a bullish thesis on RTX Corporation by Stock Picker’s Corner in January 2025, which highlighted advanced radar systems, directed-energy weapons, and exposure to hypersonic and drone defense. RTX's stock price has appreciated by approximately 72.50% since our coverage. This is because the thesis played out amid rising defense spending. The thesis still stands as geopolitical risks persist. Natural_West7949 shares a similar but emphasizes on AI-enabled defense computing and turnaround execution at Mercury Systems.

Mercury Systems, Inc. is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 26 hedge fund portfolios held MRCY at the end of the third quarter which was 28 in the previous quarter. While we acknowledge the potential of MRCY 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.

READ NEXT: 30 Stocks That Should Double in 3 Years and 11 Hidden AI Stocks to Buy NOW 

Disclosure: None.