Shift in Warfare Tactics Turns Defense Firms into Growth Stocks

For decades, military contractors appealed to equity investors for their predictability — steady revenue, solid profit margins, and reliable dividends.

The top performers in share-price gains include drone maker Kratos Defense & Security Solutions Inc., satellite operator Planet Labs PBC, and data analytics firm Palantir Technologies Inc. (Photo: Kratos Defense)

While giants such as fighter-jet maker Lockheed Martin Corp. and missile producer RTX Corp. still anchor many portfolios, they are now being joined by more nimble players resembling tech firms, with higher valuations and faster profit growth, Amethyst Martinez and Matthew Griffin reported for Bloomberg New.

The top performers in share-price gains — though not market value — include drone maker Kratos Defense & Security Solutions Inc., satellite operator Planet Labs PBC, and data analytics firm Palantir Technologies Inc., each of which has seen its stock at least double this year.

AeroVironment Inc. and BlackSky Technology Inc. have also posted strong returns.

Their rise reflects shifting warfare tactics, most visibly Ukraine’s drone-centric defense against Russia’s invasion. US President Donald Trump’s disruption of long-standing alliances has also prompted countries across Europe and Asia to boost defense spending, with some of that funding expected to flow to US contractors.

“This year has been a new dawn in defense stocks,” said James St. Aubin, chief investment officer at Ocean Park Asset Management.

“Defense was defensive for a long time, and that’s still true to some degree, but it’s taking a new turn.”

The S&P 1500 Aerospace and Defense Index, which includes 24 companies, is on track for a 41% gain this year — its best performance since 2013 — buoyed in part by growth in commercial aerospace.

That rise is more than double the S&P 500’s gain and roughly 16 percentage points ahead of the “Magnificent Seven” technology stocks.

European defense companies, including Germany’s Rheinmetall AG, Sweden’s Saab AB, and Italy’s Leonardo SpA, have also surged as governments across the continent move to sharply increase military spending.