Wall Street Is Selling Defense at the Wrong Time

Something strange is happening in the defense sector.

Defense stocks have been losing ground.

Yet the defense business itself might be stronger than it’s been in decades.

That’s the disconnect investors need to understand.

Because while Wall Street has been marking down some of America’s biggest military contractors, Washington and its allies have been doing the exact opposite.

They’re spending more.

They’re ordering more weapons.

They’re rebuilding depleted stockpiles.

They’re expanding production capacity.

And they’re signing contracts that can keep defense factories busy for years.

Those two trends cannot move in opposite directions forever.

And we think that creates one of the more interesting buying opportunities in today’s market.

The Orders Didn’t Get the Memo

Look beyond the stock charts and the numbers become difficult to ignore.

The United States is now spending more than $900 billion annually on defense, while the administration has proposed pushing the 2027 defense budget as high as $1.5 trillion.

That money isn’t theoretical.

It’s becoming submarines, fighter aircraft, missiles, missile defenses, drones, satellites, cyber systems, sensors, ammunition, and the thousands of components required to build and maintain them.

And the contracts keep getting larger.

Boeing just received a modification adding $13.4 billion to its KC-46 tanker program, taking the contract ceiling to roughly $19.1 billion and potentially keeping production running through 2035. Northrop Grumman picked up additional military work at the same time.

Those are exactly the kinds of contracts investors often underestimate.

A defense contractor doesn’t receive an order for a nuclear submarine, missile system, or military aircraft and deliver it next quarter.

These programs stretch across years.

Factories need to be expanded.

Workers need to be hired.

Suppliers need to be secured.

Production lines need to be maintained.

Then the equipment has to be serviced, upgraded, repaired, and eventually replaced.

One contract can create revenue streams that last far beyond the market’s latest bout of pessimism.

We’re Running Out of Things That Go Boom

There’s an even more urgent reason spending should remain elevated.

The West has used a lot of weapons.

Wars in Ukraine and the Middle East have exposed just how quickly advanced militaries can burn through ammunition, interceptors, missiles, drones, and other systems once a real conflict starts.

The U.S.-Iran war alone exposed shortfalls in advanced munitions while inflicting billions of dollars in damage and equipment losses. A recent government assessment documented significant strain on U.S. weapons inventories and military infrastructure.

And the threat hasn’t disappeared.

Recent fighting around Yemen and the Red Sea is again highlighting how quickly missile-defense and munitions stockpiles can become strategic vulnerabilities.

That’s why replenishment matters so much.

You can’t deter an adversary with an empty warehouse.

And you can’t rebuild those warehouses overnight.

It takes years to expand missile production, train workers, certify suppliers, source explosives and rocket motors, and get manufacturing lines operating at higher rates.

For investors, that’s the critical point.

Even if today’s geopolitical conflicts suddenly became less intense, the rebuilding process would continue.

The orders have already been placed.

Europe Finally Opened Its Wallet

This isn’t just an American defense boom either.

NATO has fundamentally changed its spending targets.

At the 2025 Hague summit, members committed to spending 5% of GDP on defense and defense-related security investments by 2035, including at least 3.5% for core military capabilities. European allies and Canada increased defense spending nearly 20% in real terms in 2025 alone.

And they’re already putting that commitment into practice.

At NATO’s 2026 Ankara summit, allies announced more than €50 billion in procurement deals covering precision-strike weapons, integrated air and missile defense, unmanned systems, intelligence capabilities, and other advanced technologies.

That’s a structural change.

For decades, investors could reasonably argue that European nations talked about defense more than they paid for it.

That argument is getting harder to make.

Russia’s invasion of Ukraine, instability across the Middle East, concerns surrounding China, and the growing threat to satellites, communications networks, and other critical infrastructure have forced governments to reconsider what military readiness actually costs.

And NATO isn’t simply telling countries to spend more.

It’s actively trying to increase production capacity so industry can deliver what governments are ordering.

That’s great news for the defense industrial base.

Tomorrow’s Military Costs More Too

The spending boom isn’t limited to replacing conventional weapons.

We’re also watching an entirely new generation of warfare emerge.

Hypersonic missiles.

Drone swarms.

Counter-drone systems.

Autonomous vehicles.

Artificial intelligence.

Electronic warfare.

Cybersecurity.

Space-based surveillance.

And now weapons designed specifically to operate in orbit.

The U.S. military recently acknowledged the existence of on-orbit space-control weapons, a development a U.S. Space Command official described as a landmark shift in how America prepares to defend its assets in space.

That’s another market investors need to understand.

Defense isn’t becoming cheaper because technology is improving.

It’s becoming more technologically intensive.

The military still needs aircraft carriers, submarines, fighter jets, and missiles.

Now it also needs satellites, software, drones, lasers, artificial intelligence, advanced sensors, cyber defenses, and entirely new classes of weapons.

And many of those systems create new recurring spending requirements of their own.

So Why Are Defense Stocks Falling?

Because stocks don’t move solely on fundamentals.

Sometimes investors take profits after strong runs.

Sometimes valuations get ahead of themselves.

Sometimes money rotates toward another sector.

Sometimes peace negotiations or political headlines convince traders that military spending is about to collapse.

And sometimes the market simply gets bored.

We’ve seen this before.

Defense contractors can sell off while their order books continue expanding.

Eventually, though, earnings have a way of reminding investors what the contracts were worth.

That’s why we’re paying attention to the current weakness.

We’re not saying every defense stock is cheap.

We’re certainly not saying every contractor will win.

New companies are entering the industry, procurement priorities are changing, and the Pentagon increasingly wants lower-cost systems that can be produced at enormous scale. One well-funded startup recently unveiled a mass-producible cruise missile it hopes to manufacture by the thousands, highlighting just how rapidly the competitive landscape is evolving.

That makes stock selection more important, not less.

Follow the Money

The big picture, however, is difficult to dispute.

Governments are spending more.

Military inventories need replenishing.

NATO is rearming.

Production capacity is expanding.

New technologies are creating entirely new defense markets.

And multiyear contracts are giving the best-positioned companies exceptional visibility into future revenue.

Yet Wall Street is handing investors opportunities to buy into that trend at lower prices.

We think that’s worth investigating.

The challenge is separating the contractors that are simply riding the spending wave from the companies sitting directly in front of the biggest procurement trends.

That’s where our senior defense strategist, Jason Simpkins, comes in.

Jason has spent years tracking military budgets, weapons programs, emerging defense technologies, and the companies positioned to benefit from America’s changing national security priorities.

And inside his flagship advisory service, Power & Profits, he’s showing subscribers where he believes the biggest opportunities are developing right now — including the defense plays that could benefit most from this growing disconnect between falling share prices and soaring government spending.

If you’ve been waiting for a better entry point into the defense boom, Wall Street may finally be giving you one.

Click here to learn more about Power & Profits and see where Jason believes investors should be looking next.