One Stop Systems: A High-Conviction Buy in the AI Defense Sector

The intersection of artificial intelligence and national security has become one of the most compelling investment themes of the 2020s. At the forefront of this convergence is One Stop Systems (OSS), a company uniquely positioned to capitalize on the U.S. and global defense sectors' urgent need for AI-ready hardware. With a recent string of contract wins, accelerating revenue growth, and a clear path to profitability, OSS presents an asymmetric risk/reward profile that demands serious consideration from investors seeking exposure to the AI defense boom.

Defense Contracts as Strategic Catalysts

One Stop Systems has emerged as a critical supplier of high-performance computing solutions for mission-critical defense applications. In September 2025, the company secured a $500,000 contract with Safran Federal Systems for 4U, short-depth servers tailored for naval vessels and aircraft, with cumulative sales projected to exceed $3 million over five years. This deal underscores OSS's ability to deliver ruggedized hardware in environments where reliability and performance are non-negotiable.

Even more significant is the $6.5 million contract awarded in April 2025 for 80 high-performance servers and FPGA systems to support a U.S. Department of Defense mobile intelligence platform according to reports. This marks the third major contract with the same customer in eight months, signaling OSS's deepening integration into the DoD's AI and edge-computing infrastructure. The company's focus on "platform-level wins" aligns with the military's push to deploy AI at the tactical edge, where real-time data processing can mean the difference between mission success and failure.

Recent international expansion further bolsters OSS's growth trajectory. A $200,000 order from a leading Asian defense contractor for rugged servers used in unmanned surface vessels (USVs) highlights the company's global appeal. With follow-on orders anticipated, OSS is not only diversifying its customer base but also tapping into the rising demand for autonomous systems in maritime security.

Financial Momentum and Margin Improvements

The financials tell a story of rapid acceleration. In Q3 2025, OSS reported consolidated revenue of $18.8 million, a 36.9% year-over-year increase, with gross margins improving to 35.7%. This marked a stark contrast to Q4 2024, where gross margins dipped to 15.7% due to a one-time $1.2 million charge related to a customer-funded development contract as per Q4 results. The recent margin rebound suggests OSS is optimizing its product mix and scaling efficiently.

Management has raised full-year 2025 revenue guidance to $63–$65 million, with the OSS segment expected to contribute $30–$32 million-a 20–30% annual growth rate according to financial analysis. This outpaces the company's previous projections and reflects the compounding effect of its defense contract pipeline. Notably, OSS now anticipates achieving EBITDA break-even for 2025, a critical milestone that reduces downside risk for investors as confirmed in earnings.

Asymmetric Risk/Reward: High Upside, Manageable Downside

The asymmetric nature of OSS's risk/reward profile is compelling. On the upside, the company is capitalizing on a multi-decade tailwind: the militarization of AI. With global defense budgets surging-particularly in the U.S., where AI spending is projected to exceed $10 billion annually by 2027-OSS's niche in rugged, AI-optimized hardware positions it to capture a disproportionate share of this growth.

On the downside, risks are relatively contained. While OSS's reliance on defense contracts could make it vulnerable to budget shifts, the company's diversified customer base (including both U.S. and international clients) mitigates this. Additionally, the recent EBITDA-positive Q3 and updated guidance indicate improving operational leverage, reducing the likelihood of a return to the net losses seen in Q4 2024 as reported in Q4 results.

Near-Term Catalysts to Watch

Several near-term catalysts could drive further momentum. First, the ramp-up of existing contracts, particularly the $6.5 million DoD deal, will provide a steady revenue stream through 2026. Second, OSS's ongoing R&D in FPGA-based systems and edge computing solutions could unlock new applications in real-time analytics and autonomous systems. Third, the company's international expansion-evidenced by the Asian defense contract-offers a scalable path to global market penetration.

Conclusion: A High-Conviction Buy

One Stop Systems is more than a beneficiary of the AI defense trend-it is a builder of the infrastructure enabling the next generation of military technology. With a robust contract pipeline, improving margins, and a clear path to profitability, OSS offers investors an asymmetric opportunity: a high-growth play with manageable downside. For those willing to bet on the intersection of AI and national security, OSS is a high-conviction buy.