Defense Stocks Rally as Global Military Spending Accelerates

Defense stocks are climbing as investors wager that rising military spending, efforts to replenish depleted weapons stockpiles, and the growing adoption of artificial intelligence (AI) in defense will fuel long-term growth in the sector.

The U.S. Department of Defense recently awarded Lockheed Martin a $35.3-billion multiyear contract to manufacture Terminal High Altitude Area Defense (THAAD) missiles. (Photo: Lockheed Martin Facebook)

According to Jake Conley of Yahoo Finance, the rally pushed the iShares U.S. Aerospace & Defense ETF to its first intraday record high in four months early this week, supported by strong gains in major defense and aerospace companies, including GE Aerospace, Boeing, RTX, and Howmet Aerospace.

"As geopolitical tensions rise and countries assume greater responsibility for their own security, governments are increasing investments in military capabilities," Franklin Templeton Chief Market Strategist Stephen Dover and Head of Research Larry Hatheway said in a report to clients.

They added that rapid technological advances are making many traditional defense systems obsolete, increasing demand for advanced weapons, cybersecurity, space-based defense systems, and modernized military infrastructure.

In late June, U.S. President Donald Trump met with executives from major defense manufacturers, including Lockheed Martin, Boeing, and Honeywell, to discuss accelerating production of key weapons systems to replenish military stockpiles.

Days later, the U.S. Department of Defense awarded Lockheed Martin a $35.3-billion multiyear contract to manufacture Terminal High Altitude Area Defense (THAAD) missiles.

According to the Center for Strategic and International Studies (CSIS), each THAAD interceptor costs about $15.5 million to produce.

RTX also received a contract worth about $400 million to manufacture medium-range air-to-air missiles. The award follows an earlier contract to significantly expand production of Tomahawk cruise missiles.