While the U.S. government is planning significant increases in defense spending for 2026, most of those plans have not yet translated into contract awards or hiring. Some of the anticipated spending is already reflected in defense stock prices, but the prolonged and often opaque appropriations process has left many individual investors uncertain of who will be the winners and losers of the military expansion.
For investors seeking exposure to defense industry growth, this may be the moment to reassess watchlists and begin positioning portfolios.
Here’s the state of play: About $150 billion of the White House’s proposed $1.01 trillion in defense spending has already been appropriated, within the One Big Beautiful Bill Act, or OBBBA, including theGolden Domeanti-missile initiative and $10.8 billion to modernize the U.S. nuclear arsenal.
Meanwhile, both House and Senate appropriations committees have advanced versions of the FY2026 Defense Appropriations Act. And the president signed the $901 billion National Defense Authorization Act (NDAA) in December, an important precursor to appropriations.
To be sure, the defense sector is already a beneficiary of market tailwinds—including the many geopolitical conflicts underway that require, or threaten to require, some level of U.S. involvement. And defense equities have already repriced meaningfully in 2025. But if and as the funding outlook becomes more certain, more upside is likely to follow, and for a broader range of stocks.
U.S. defense stocks are benefiting from the Defense Department’s $1 trillion in spending.
Photo by TayebMEZAHDIA on Pixabay
What’s ahead for defense stocks
For starters, investors should keep in mind that several large and critical initiatives are still in line for federal funding, even though they were not authorized by the NDAA. These include:
- $3.9 billion for hypersonic weapons,
- $3.5 billion for upcoming F-47 fighter jets,
- $2.5 billion for increased production of missiles and munitions,
- $15.1 billion for cybersecurity,
- and a 30% increase in Space Force funding to $40 billion.
Moreover, the defense department has asked companies whether they can “quickly” build about 300,000 drones, signaling that firms in that sector are likely to win large contracts in the future. The administration has also indicated that it expects passage of a follow-on reconciliation bill in the coming months that will provide the Pentagon with an additional $113.3 billion for FY2026.
Defense stocks to watch:
Lockheed Martin (LMT), with a low forward price-earnings ratio of 16, should get a lift from the Pentagon’s request for 245 of its PAC-3/MSE missiles. Lockheed should also benefit from the Trump administration’s decision to seek nearly $400 million for production of the firm’s new hypersonic weapon.
And the Pentagon’s budget calls for over $4 billion to be spent on Northrop’s B-21 Raider stealth bomber. It also seeks $4.1 billion for R&D related to the company’s Sentinel intercontinental ballistic missile (ICBM) program. NOC has a low price-earnings ratio of 19.5.
Other stocks to watch include:
- L3Harris (LHX). L3 sells systems for hypersonic threat detection and has said it produces “the only proven on-orbit system capable of tracking Iran’s new hypersonic missiles.” L3 is positioned to benefit from already-appropriated Golden Dome funding and its “strong rocket motor and rocket engine businesses” appear likely to get a boost from the proposed increase in Space Force budget. Given LH3’s relatively low forward price-earnings ratio of 23.15, most of its likely future top-and-bottom-line gains are probably not yet priced into the shares.
- Rocket Lab (RKLB). As a rocket maker, RKLB is also poised to benefit from the likely increase in Space Force budget. Additionally, the firm has said that it can get a boost from Golden Dome. But with the shares changing hands at a very high price-sales ratio of 51.25 times, some or all of these future contract awards could already be priced in.
- Palladyne (PDYN). Palladyne, whichdevelops technologythat enables drones to carry out functions autonomously, has had “direct contracts with the Air Force and with the Navy (for) the development of capabilities that they want to deploy.” Moreover, its CEO reported that the firm believes that it’s “well-positioned for an upcoming Department of War contract award.” However, the shares are changing hands ata high price-sales ratio of 38.7 times, potentially limiting the stock’s gains in the near-to-medium term.
- RTX (RTX). A leading producer of missiles, RTX is likely to get a significant chunk of the $2.5 billion that the Trump administration is seeking to spend on increased production of missiles and munitions during the current fiscal year. What’s more, the company, which markets the Patriot anti-missile system, has indicated that it’s well-positioned to benefit from Golden Dome. In light of the firm’s relativelylow forward price-earnings ratio of 27.4 times, its shares could rally soon if it receives significant new contracts.
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