Modern Warfare Isn’t Won by Troop Numbers Alone. Radars, Sensors, and Technology Make the Difference

On the modern battlefield, what matters is how quickly an army detects a threat, evaluates the data, and deploys the right asset. Radars, electronic warfare, interceptors, drones, and military software are therefore becoming the fastest-growing parts of defense budgets. That makes it crucial to understand which growth is likely and how much of it is already reflected in share prices.

How modern warfare is changing

Whoever sees first wins

Military strength used to be measured by the number of soldiers, tanks, and aircraft. Today, it is increasingly measured by the length of the so-called “kill chain”—the time between detecting a target and hitting it. The war in Ukraine has shown that the battlefield is almost transparent: inexpensive drones, satellites, and sensors can reveal concentrations of military equipment within minutes. Whoever obtains information first, evaluates it correctly, and quickly relays it to weapons systems has a decisive advantage, even against a numerically stronger opponent.

Three shifts follow from this. Radars and sensors must be able to distinguish a ballistic missile from a cruise missile or a small drone. Software must process data from thousands of sensors, because people cannot manage it in real time. Communications networks must continue to function under jamming, because the adversary will try to blind them.

Electronic warfare as an invisible front

In Ukraine, jamming satellite navigation and radio communications has become a routine part of daily combat. Weapons relying on GPS lost accuracy, drones crashed when their connections were interrupted, and both sides began using fiber-optic-guided drones that cannot be jammed. The long-term consequence is demand for resilient radios, jammers, and systems capable of rapidly changing frequencies. This is not one of the most visible areas, but it has high barriers to entry because of security requirements and certifications.

Drones and interceptors are changing the economics of warfare

The war with Iran, which began on February 28, 2026, saw more than 6,000 attack drones and more than 1,500 ballistic missiles intercepted, according to a Congressional Research Service (CRS) analysis dated 5. 10. 2026. According to CRS, the US military reportedly used approximately 1,700 Patriot interceptors, 200 THAAD interceptors, and 150 Standard Missiles. The Congressional Budget Office (CBO) estimates that the US used up half to two-thirds of its stocks of some interceptors, and replenishing them will take at least five years.

The conflict exposed a fundamental mismatch: an inexpensive drone costing tens of thousands of dollars is often shot down with an interceptor costing millions. This is driving demand for layered defense that combines jamming, lasers, and cheaper kinetic weapons.

Short-term lessons versus lasting changes

It is important to distinguish between extraordinary demand to replenish expended stocks and a lasting change in doctrine. Replenishing stocks is inherently temporary, even if it takes years. Structural changes, by contrast, include connecting sensors and weapons in a single network, adopting autonomous systems, and entering into long-term, multiyear munitions contracts. Companies whose products are built around this second wave have a higher-quality growth profile.

The defense industry and rising budgets

US: a record proposal, an uncertain reality

In April 2026, the US administration submitted a proposed defense budget of USD 1.5 trillion for fiscal year 2027. The proposal combines USD 1.15 trillion in regular funding with USD 350 billion from so-called budget reconciliation, which Congress must approve through special legislation. This represents an increase of approximately 44% over fiscal year 2026.

The following proposed budget items are relevant to the companies analyzed:

• approximately USD 54 billion for autonomous and remotely operated systems, including USD 39.2 billion under the “Drone Dominance” initiative,

• approximately USD 17.5–17.9 billion for the Golden Dome missile shield, largely funded through budget reconciliation,

• significantly higher purchases of munitions and interceptors, and more multiyear munitions contracts.

In June 2026, the government also requested an emergency budget that includes USD 21 billion for munitions. According to CRS in October 2026, neither the emergency funding nor the reconciliation funding had yet been approved.

Europe and NATO: slower, but steadier momentum

At the 2025 summit in The Hague, allies pledged to spend 3.5% of GDP on core defense spending and a further 1.5% on defense-related spending by 2035. According to NATO estimates published in July 2026, European allies’ and Canada’s defense spending will rise by approximately 11% in 2026 to USD 634 billion, equivalent to 2.53% of their GDP. European demand is important to US companies, particularly for Patriot systems, munitions, and drones, as comparable domestic alternatives are not yet available.

Which budget items will grow fastest?

The fastest growth is expected in air and missile defense, munitions, unmanned systems, and countermeasures to them. IT modernization, cybersecurity, and training should grow more slowly but steadily. RTX is best positioned to benefit, thanks to Patriot and its missiles; L3Harris, thanks to rocket motors and electronic warfare; and AeroVironment, thanks to drones and counter-drone systems. Leidos benefits more indirectly, through systems integration and its own developing munitions program.

L3Harris

Three business pillars

In 2026, L3Harris reorganized its business into three segments. According to its third-quarter 2026 earnings report, revenue was as follows:

• Space & Mission Systems: USD 3.09 billion (space sensors, reconnaissance and early-warning aircraft, avionics), segment margin of approximately 10.9%,

• Communications & Spectrum Dominance: USD 2.00 billion (tactical radios, encrypted communications, electronic warfare, including the Next Generation Jammer), margin of approximately 25.2%,

• Missile Solutions: USD 1.06 billion (solid-fuel rocket motors, interceptor propulsion systems), margin of approximately 12.0%.

Third-quarter 2026 revenue increased 7% to USD 6.1 billion, or 9% organically. Diluted earnings per share (EPS) under generally accepted accounting principles (GAAP) rose 33% to USD 3.28.

Aerojet Rocketdyne as a strategic linchpin

The 2023 acquisition of rocket-motor manufacturer Aerojet Rocketdyne proved pivotal. In early 2026, L3Harris formed it into a standalone Missile Solutions segment, and in April 2026 it closed a USD 1 billion investment from the Department of War in the form of preferred shares in the subsidiary. According to a press release dated 23. 4. 2026, L3Harris is expected to retain an ownership stake of more than 80% and plans to list the segment on the stock exchange.

In the third quarter, L3Harris won a seven-year contract worth USD 6.3 billion for THAAD propulsion systems and a USD 4.7 billion contract for PAC-3 MSE interceptor propulsion systems. The segment’s book-to-bill ratio reached 11.8. Both contracts are still considered “undefinitized,” meaning their final prices and margins have not yet been agreed.

Competitive advantage and barriers to entry

Production of solid-fuel rocket motors in the US is concentrated among just a few suppliers, and building new capacity takes years. Tactical radios and electronic warfare systems require certifications, security clearances, and integration into existing networks. Switching suppliers would require retraining troops and risk incompatibility. These barriers help explain why the communications segment achieves margins of around 25%.

Contracts, cash flow, and debt

Backlog reached a record USD 53.2 billion at the end of the third quarter, with quarterly orders of USD 19.3 billion. Free cash flow for the quarter was USD 1.26 billion, and management reaffirmed its forecast of USD 3.0 billion for full-year 2026. Total debt was USD 11.0 billion, compared with USD 3.05 billion in cash and short-term investments. Net debt is therefore equivalent to approximately 2.7 times annual free cash flow, a manageable level. Management’s 2026 outlook calls for revenue of USD 23.5–23.7 billion and GAAP EPS of USD 12.25–12.35.