The 7 Largest Defense Stocks
The defense sector is going through its strongest order cycle since the end of the Cold War. Record backlogs, rising budgets on both sides of the Atlantic, and the replenishment of depleted ammunition stockpiles are creating a combination the market hasn't seen in a long time. At the same time, much of this boom is already priced in. How are the seven biggest players really doing?
Key points
The defense sector is experiencing its strongest order cycle since the end of the Cold War. Record backlogs and sharply rising budgets, however, do not automatically mean further stock gains.
Valuation differences among individual stocks are extreme. Some trade at around 19 times expected earnings, others at around 46 times, even though they benefit from the same defense boom.
Record orders can paradoxically worsen cash flow in the short term. Production must rapidly expand capacity and a large portion of future profits must first be financed.
One of the most-watched stocks in the sector reports its best results in history, yet it is more than 40% below its peak. A great business does not necessarily mean a great investment if expectations were even higher.
The defense industry has transformed over the past three years from a defensive, boring sector with predictable margins into one of the most-watched parts of the stock market. The reason is simple and unfortunately unpleasant. Wars in Europe and the Middle East, depleted ammunition warehouses, and a reassessment of Western security architecture have led to a budget turnaround not seen since the 1950s.
On the European side, the basic framework is the NATO commitment to spend 5 percent of GDP on security by 2035, divided into 3.5% on own defense capabilities and 1.5% on critical infrastructure. Germany, which was spending under 2% of GDP in 2024, plans defense funding of around 117 billion euros for 2026 and aims to reach 162 billion by 2029. On the American side, the administration has submitted a budget request of 1.5 trillion dollars for fiscal year 2027, with 1.15 trillion as the Pentagon's base budget, which would be the first time the trillion-dollar mark has been exceeded in the base portion of the budget.
For investors, it is crucial to separate two things that often merge in media coverage. A budget commitment is not an order, an order is not revenue, and revenue is not cash. The speed with which individual companies can move through this entire chain today determines which stocks move and which stand still. Let's look at the seven largest stocks in the sector and what their latest results actually show.
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