“Here We Go!” Defense Stocks Set for Another Surge

Russia’s latest attack heralds another leg up for defense stocks.

There’s no other way to see it. 

Last week, NATO jets scrambled to intercept a wave of Russian drones that violated Polish airspace. 

Ostensibly, the drones were on their way to Ukraine. However, it’s also likely that Russia was testing Poland’s air defense systems. 

In any case, four of the 19 drones were shot down and Poland invoked Article 4 of the NATO charter, which calls for an emergency meeting. 

The next step, obviously, would be Article 5, which requires NATO allies to come to each other’s defense. 

Now, over the past decade or so, President Trump has been one of NATO’s foremost critics — even going so far as to consider abandoning the alliance altogether. 

In fact, just last year Trump told America’s European allies that not only would he not protect them in the event of a Russian invasion, but he’d encourage them to "do whatever they want."

However, more recently, Europe’s dedicated effort to ramp up defense spending and buy American weapons seems to have won Trump over. Furthermore, Vladimir Putin’s belligerence, doublespeak, and mass bombings have undermined peace talks and drawn Trump’s ire.

Indeed, the balance of power has clearly shifted. And this latest incursion tilts it still further in Europe’s direction.

Trump himself took to social media to decry the incident.

“What’s with Russia violating Poland’s airspace with drones?” Trump wrote. “Here we go!”

To be honest, I don’t know exactly what “Here we go!” means, but it sounds resoundingly supportive. 

It also came a week after Trump met with Polish President Karol Nawrocki and pledged to maintain America’s military presence in Eastern Europe. 

“We’ll put more there if they want,” Trump said. “But they’ve long wanted to have a larger presence. We have some countries that have more — not too many. But no, they’ll be staying in Poland. We’re very much aligned with Poland.”

In light of this latest incident and Trump’s newfound enthusiasm, I think it’s likely we see some action in support of his rhetoric.

That could mean deploying a Patriot missile battery on the Polish-Ukrainian border, expediting delivery of the F-35 fighter jets Poland has on order, or even deploying more American troops and assets to the region.

That would certainly send a message to both Russia and Europe. And it’d be a boon for defense stocks like RTX (NYSE: RTX) and Lockheed Martin (NYSE: LMT).

As I said, Europe — recognizing the immediate threat posed by Russia and eager to court Trump’s favor — have drastically increased defense spending. 

For the first time ever, every single one of NATO’s 32 members will meet the alliance’s defense spending goal of 2% of GDP this year. (Just three met that target in 2014!)

On top of that, NATO earlier this year set forth a new defense spending target of 3%–5% of GDP.

And in fact, some member nations already meet or exceed that goal.

Poland, for example, spends 4% of its GDP on defense, up from just 1.9% in 2014. 

Others aren’t there yet, but they’re already close. 

Which is to say every single NATO country that borders Russia and/or Ukraine now spends more than 2% of its GDP on defense. So getting to or above 3% in the next year or two shouldn’t be a problem.

As a result, Europe’s defense spending will continue to grow from its current trillion-dollar level. 

Meanwhile, the United States itself is spending $1 trillion a year on defense, and that figure will almost certainly continue to rise, as well. 

To put a point on all of this… 

Vladimir Putin has made it clear that he has no interest in making peace with Ukraine. And last week’s drone incident was his most brazen violation of a NATO ally yet. 

It was clearly an attempt to undermine Poland’s sovereignty and test its anti-aircraft capabilities. 

Meanwhile, President Trump has come to recognize that it’s Putin — not Ukrainian President Volodymyr Zelenskyy — thwarting his efforts to broker a peace deal between the two countries. 

And Europe has drastically increased its defense spending to both accommodate Trump’s demands and ward off further Russian aggression.

All of this points to higher defense spending in the short, medium, and long term.

It also shows the necessity for the Golden Dome — Trump’s massive homeland missile defense initiative that may also be expanded to include Europe.

This is bullish news for defense contractors writ large. But especially for this company that figures to run point on the Golden Dome. 

Investors should act accordingly.