Velo3D's $11.5M Defense Deal Adds Backlog but Fails to Address Core Financial Woes

What happened

Velo3D announced an $11.5 million production agreement with a major U.S. defense contractor, continuing its strategic pivot toward defense markets via the Rapid Production Solutions (RPS) segment. This follows recent larger defense wins, such as the $32.6M DIU contract and Army CRADA, which underpin the company's turnaround narrative. However, the DeepValue master report highlights that Velo3D's financials remain deeply troubled, with Q3 2025 showing a 3.2% GAAP gross margin, negative earnings, and going-concern warnings due to insufficient cash. The report also emphasizes persistent risks, including potential dilutive equity raises and execution challenges in converting contracts to profitable production. Thus, while this deal adds incremental backlog, it does not resolve the fundamental issues of profitability and liquidity that cap upside.

Implication

The $11.5 million production agreement provides modest revenue reinforcement and aligns with Velo3D's defense pivot, potentially boosting short-term sentiment among investors. However, it is relatively small compared to existing contracts and does not address the critical issues of gross margin compression from tariffs and supplier terms, which have kept profitability elusive. Investors should focus on upcoming financial disclosures for evidence of gross margin expansion toward management's targets and RPS backlog growth exceeding 20% sequentially, as these are key milestones for the turnaround. Without such improvements, the company's path to EBITDA breakeven remains uncertain, and further capital raises could lead to significant dilution. Consequently, the stock's risk-reward profile remains unfavorable at current prices, consistent with the DeepValue report's 'POTENTIAL SELL' rating.

Thesis delta

The new defense agreement slightly reinforces the bull case by demonstrating continued contract traction, but it does not alter the bearish fundamentals of low profitability and high dilution risk. The core investment thesis remains unchanged: Velo3D is overvalued unless it achieves meaningful margin expansion and reduces dependency on external financing. Therefore, no material shift in the thesis is warranted, and investors should maintain a cautious stance.