As the U.S. government prepares for a substantial increase in defense spending for fiscal year 2026, individual investors are assessing the implications for defense stocks. The proposed budget stands at approximately $1.01 trillion, with around $150 billion already appropriated through the One Big Beautiful Bill Act (OBBBA). This includes funding for key initiatives such as the Golden Dome anti-missile program and $10.8 billion for modernizing the U.S. nuclear arsenal.
Despite these plans, many of the anticipated increases have yet to yield significant contract awards or hiring within the sector. Investors are left navigating a complex appropriations process that often obscures which companies will be the primary beneficiaries of military expansion.
Current Landscape for Defense Stocks
The defense industry is currently buoyed by various geopolitical conflicts that necessitate U.S. involvement. As a result, defense equities have seen a notable increase throughout 2025. Analysts expect that as funding becomes clearer, further growth in stock prices will follow.
The U.S. Department of Defense is poised to allocate significant funding for multiple initiatives, even those not authorized by the recently signed $901 billion National Defense Authorization Act (NDAA). Key upcoming expenditures include:
– $3.9 billion for hypersonic weapons
– $3.5 billion for the new F-47 fighter jets
– $2.5 billion for increased production of missiles and munitions
– $15.1 billion for cybersecurity efforts
– A 30% increase in funding for the Space Force, bringing its total to $40 billion
Additionally, the Defense Department is exploring rapid production capabilities for around 300,000 drones, indicating potential lucrative contracts for companies in that market. The administration anticipates that a follow-up reconciliation bill will soon provide an extra $113.3 billion for FY2026.
Stocks to Monitor as Defense Spending Grows
Several companies stand out as potential beneficiaries of the increased defense budget:
Lockheed Martin (LMT) has a favorable forward price-earnings ratio of 16. The Pentagon is seeking 245 PAC-3/MSE missiles from the company, and it also anticipates nearly $400 million for the production of a new hypersonic weapon.
Northrop Grumman (NOC) is set to benefit from over $4 billion earmarked for the B-21 Raider stealth bomber, alongside $4.1 billion for research and development associated with the Sentinel intercontinental ballistic missile program. It currently holds a price-earnings ratio of 19.5.
Other notable companies include:
– L3Harris (LHX): This firm specializes in hypersonic threat detection and claims to operate the only proven system for tracking Iran’s hypersonic missiles. With a price-earnings ratio of 23.15, L3Harris is well-positioned for growth linked to Golden Dome funding and increased Space Force budget allocations.
– Rocket Lab (RKLB): As a rocket manufacturer, Rocket Lab stands to gain from the anticipated increase in the Space Force budget. However, its current high price-sales ratio of 51.25 may mean that much of the potential growth is already priced into the stock.
– Palladyne (PDYN): Known for developing autonomous drone technology, Palladyne has secured contracts with both the Air Force and Navy. Its CEO expressed confidence in securing future Department of War contracts. Nonetheless, its high price-sales ratio of 38.7 could limit short-term gains.
– RTX (RTX): As a major missile producer, RTX is likely to capture a substantial portion of the $2.5 billion allocated for increased munitions production. With a price-earnings ratio of 27.4, the company is well-positioned for a stock rally should it secure new contracts.
As defense spending trends continue to evolve, investors are encouraged to reassess their portfolios, keeping a close eye on these stocks poised for potential growth as the appropriations process unfolds. The coming months could prove significant for those looking to capitalize on the U.S. defense sector’s expansion.
