Defense Stocks: How to Invest in the Defense Industry

Last updated: November 12, 2026 | By Jason Simpkins, Wealth Daily defense analyst

What Are Defense Stocks?

A defense stock is any company whose business depends heavily on selling weapons, equipment, technology or services to the military and intelligence agencies of the U.S. and its allies.

The sector isn’t one type of business. It breaks down into several groups, and each one behaves differently as an investment:

• Prime contractors. These are the giants that win the largest Pentagon programs and deliver complete systems: aircraft, missiles, submarines, satellites. Examples include Lockheed Martin (NYSE: LMT), RTX (NYSE: RTX), Northrop Grumman (NYSE: NOC) and General Dynamics (NYSE: GD).
• Suppliers and component makers. These companies make the engines, electronics, castings, sensors and subsystems the primes put into their platforms. They often sell to commercial aerospace as well.
• Shipbuilders. A small group of yards builds the Navy’s carriers, submarines and surface ships. Huntington Ingalls (NYSE: HII) and General Dynamics are the two largest.
• Defense technology companies. Software, AI, autonomy, cyber and space firms are taking a growing share of the budget. Palantir Technologies (NASDAQ: PLTR) is the best-known public example. Some of the most talked-about names in this group, such as Anduril and SpaceX, are still private.
• Government services and IT contractors. Firms such as Leidos (NYSE: LDOS) run systems, data and support work for the Pentagon and intelligence agencies.
• International defense companies. European and Asian contractors such as BAE Systems, Rheinmetall, Thales, Leonardo and Hanwha are benefiting from rearmament in their home regions.

Why Defense Stocks Are in Focus: Where Things Stand (November 2026)

Defense spending is set by politicians, and 2026 has been an unusually political year for the sector. Here is the current picture.

The $1.5 trillion budget request

On April 3, 2026, the White House sent Congress a $1.5 trillion defense budget request for fiscal 2027. It was made up of a $1.15 trillion base budget plus $350 billion the administration wanted passed through a separate reconciliation bill. The total would be a 44% increase over fiscal 2026, and the base budget alone would be the first to top $1 trillion.

The request leans heavily on new hardware. Pentagon officials put base procurement at just under $260 billion and research and development at just under $220 billion. It proposed growing the Space Force budget to $71 billion from about $40 billion. According to a National Law Review analysis, it also included $65.8 billion for shipbuilding, the most since 1962, and $55 billion for autonomous warfare.

Congress hasn’t funded it yet

A budget request is not law. Fiscal 2027 began on October 1 without a full-year defense bill, and the Pentagon is running on a continuing resolution (CR) that holds most programs at fiscal 2026 levels through December 11, 2026. Under a CR, the Pentagon generally can’t start new programs or speed up existing ones, which can delay contract awards.

The House Appropriations Committee’s version of the defense bill came in at $1.072 trillion, well below the request.

The midterm shake-up

Democrats won both chambers of Congress in the November 3, 2026 midterms. Defense stocks fell hard the next day on fears that the $1.5 trillion budget won’t survive. Lockheed Martin dropped 6.88% on November 4. Analysts at Jefferies said they expect the final 2027 budget to land closer to the House’s $1.15 trillion figure than to the White House request.

That came on top of a weak year for the group. Despite the war with Iran and record budget requests, the NYSE Arca Defense Index was up just 2.76% in 2026 as of October 29, while the S&P 500 gained 12.57%. Budget uncertainty was the main reason analysts gave.

Even so, a smaller increase is still an increase. A budget near $1.15 trillion would be the largest base defense budget in U.S. history, and contracts already on the books don’t disappear when Congress changes hands.

Europe is rearming

Demand isn’t only coming from Washington. At their June 2025 summit in The Hague, NATO members agreed to raise defense spending to 5% of GDP by 2035, with 3.5% for core defense and 1.5% for related infrastructure, cyber and resilience. NATO’s latest annual report shows European allies and Canada boosted defense spending by 20% in 2025. European contractors have been the biggest winners so far, but U.S. companies also sell heavily to allied governments.

The Largest U.S. Defense Contractors

The table below lists the biggest publicly traded U.S. defense companies, ranked by 2025 defense revenue in the 2026 Defense News Top 100.

Source: Defense News Top 100 (September 2026). China’s state-owned AVIC ranked fifth with $32.3 billion in defense revenue.

Outside the U.S., Germany’s Rheinmetall reported $11.2 billion in 2025 revenue, up from $8.3 billion a year earlier, and South Korea’s Hanwha climbed to 16th place with $10.44 billion in defense revenue.

Key Trends Driving the Defense Industry

1. Golden Dome and missile defense

Golden Dome is the administration’s plan for a layered missile shield over the U.S. homeland, using ground, air and space-based sensors and interceptors against ballistic, hypersonic and cruise missiles. It received about $25 billion from the 2025 reconciliation bill, and the fiscal 2027 request asked for nearly $17.5 billion more.

In April 2026, the Space Force awarded contracts worth up to $3.2 billion to 12 companies, including Lockheed Martin, SpaceX and Anduril, to build prototype space-based interceptors. The goal is to demonstrate a working capability by 2028. Northrop Grumman has said it expects Golden Dome contract awards to pick up through the end of 2026 and into early 2027.

More from Wealth Daily: Iran Just Proved Why America Needs the Golden Dome

2. Rebuilding munitions stockpiles

Wars in Ukraine and the Middle East have drained U.S. stocks of interceptors and precision munitions faster than factories can replace them. That has pushed the Pentagon toward multiyear missile buys and toward cheaper, mass-produced interceptors from newer companies. Missile makers and their suppliers sit at the center of this trend.

More from Wealth Daily: America’s Missile Shortage Is a Profitable Priority

3. Drones and autonomous systems

Cheap drones have changed how wars are fought, from Ukraine to the Red Sea. The fiscal 2027 request put major new money toward autonomous warfare, and the Pentagon is buying both attack drones and the systems that shoot them down. This is where smaller and newer defense companies have the best chance to win large contracts.

4. Space

Satellites now handle missile warning, tracking, communications and navigation, and the proposed Space Force budget of $71 billion would be a big jump from roughly $40 billion. Launch providers, satellite makers and ground-station operators all stand to benefit. So does any company that reduces the Pentagon’s reliance on a single supplier.

More from Wealth Daily: Putin’s Favorite Billionaire Holds the Keys to America’s Defense

5. AI, software and electronic warfare

Modern weapons depend on data: detecting a threat, tracking it and assigning a shooter in seconds. That has made AI, edge computing, secure communications and electronic warfare some of the fastest-growing parts of the market. GPS jamming in Europe has also created demand for navigation that doesn’t rely on satellites, including quantum sensors.

More from Wealth Daily: Russia’s War on GPS Makes This Quantum Stock a Must-Own

6. Shipbuilding

The Navy wants more ships than U.S. yards can currently deliver. The fiscal 2027 request’s shipbuilding budget was the largest since 1962. Shipbuilders and their suppliers benefit, though labor shortages and delays have weighed on margins.

How to Invest in Defense Stocks

There are three common ways to get exposure to the defense sector.

Buy individual defense stocks

Buying individual companies lets you pick the parts of the industry you think will grow fastest, such as missile defense, space or drones. It also concentrates your risk. A single program cancellation, cost overrun or lost competition can hit one company hard while barely affecting the sector.

Buy a defense ETF

An aerospace and defense ETF holds dozens of companies in one fund. The four largest U.S.-listed options take different approaches:

Expense ratios as reported by fund issuers and U.S. News in 2026. Check each fund’s website for current figures and holdings.

Buy international defense stocks

European and Asian defense companies have grown faster than U.S. primes as their home governments rearm. Many trade only on foreign exchanges or as over-the-counter ADRs in the U.S., which can mean wider spreads and currency risk. Funds such as SHLD or the Select STOXX Europe Aerospace & Defense ETF (EUAD) offer an easier route.

How to Evaluate a Defense Stock

Defense companies don’t behave like most businesses. These are the numbers and factors that matter most:

• Backlog. The value of signed orders the company hasn’t delivered yet. A large and growing backlog gives years of revenue visibility.
• Book-to-bill ratio. New orders divided by revenue. A ratio above 1.0 means the backlog is growing.
• Contract type. Cost-plus contracts pass overruns to the government. Fixed-price contracts leave the company on the hook if costs run over, which has cost several primes billions in recent years.
• Program concentration. How much revenue comes from one or two programs, and how secure those programs are in the budget.
• Budget alignment. Whether the company sells into areas the Pentagon is growing (missile defense, space, munitions, autonomy) or areas it is cutting.
• International sales. Foreign military sales and allied customers reduce dependence on the U.S. budget.
• Free cash flow and dividends. Most large primes pay dividends and buy back stock, funded by steady government payments.
• Valuation. Defense stocks can get expensive after big rallies. Compare price-to-earnings and other multiples with the company’s own history and its peers.

Risks of Investing in Defense Stocks

• Budget politics. Continuing resolutions, shutdowns and changes in which party controls Congress can delay or shrink funding, as the post-midterm selloff showed.
• One dominant customer. Most U.S. defense companies depend on the federal government for the majority of their revenue.
• Cost overruns. Fixed-price development programs can produce large write-downs.
• Peace headlines. Ceasefire talks or easing tensions can send defense stocks lower in the short term, even if long-term spending plans don’t change.
• Valuation risk. After strong runs, prices may already assume years of budget growth.
• Export and political restrictions. Arms sales to foreign buyers need government approval and can be blocked or delayed.

Defense Stocks FAQ

Sources

• Breaking Defense, “Trump proposes $1.5 trillion defense budget, banking on $350 billion from reconciliation,” April 2026
• MeriTalk, “White House proposes $1.5T defense budget for 2027,” April 2026
• Greenberg Traurig, “Understanding the President’s FY 2027 Budget Request for the Department of War,” May 2026
• National Law Review, analysis of the FY 2027 defense budget request, May 2026
• CSIS, “FY 2027 Defense Funding: Potential Post-Midterm Outcomes,” 2026
• ClearanceJobs, “The Pentagon Starts Fiscal 2027 on a Stopgap,” October 2026
• Journal of Electronic Defense, House Appropriations Committee FY 2027 Defense Appropriations Act, July 2026
• 24/7 Wall St. and The Motley Fool, coverage of defense stocks after the 2026 midterms, November 2026
• Reuters (via Stocktwits), Jefferies outlook on the FY 2027 defense budget, November 2026
• Insider Monkey, NYSE Arca Defense Index performance through October 29, 2026
• Defense News, 2026 Top 100 ranking, September 2026
• U.S. Space Force and MeriTalk, Golden Dome space-based interceptor awards, April 2026
• Defence Industry Europe, Northrop Grumman Golden Dome outlook, 2026
• NATO Hague Summit declaration, June 2025; Fox News on NATO’s 2025 annual report, 2026
• U.S. News & World Report and Kiplinger, aerospace and defense ETF data, 2026

This page is for educational purposes only and is not a recommendation to buy or sell any security. Wealth Daily does not provide individual investment advice. Figures are accurate as of the date above and may change. All investments carry risk, including loss of principal. Please read our Details and Disclosures.