Defense stocks explode as the West bets big on deterrence

Introduction: a market betting on Cold War 2.0

Numbers that make you dizzy

There are mornings when stock markets tell a story that official speeches don't dare say quite so plainly. In this early July 2026, that story is being written in capital letters: the Western defense sector is trading at historic valuations, driven by what several analysts now call a "deterrence economy." Western governments, from the Pentagon to Whitehall to Berlin, are now embedding military capability at the very core of their national economic strategies, and Wall Street understood the message before anyone else.

The S&P Aerospace & Defense Select Industry Index has outperformed the broader market by nearly 22% over the past twelve months, a gap that cannot be explained by a simple stock-market fad. Lockheed Martin, RTX Corporation, and Northrop Grumman — the three historic giants of the American defense industry — now post combined order backlogs exceeding $550 billion. That is more than the gross domestic product of many NATO member states combined.

Why this exact moment matters

This is not a calendar coincidence. From Operation Midnight Hammer in June 2025 — the American strike on Iranian nuclear facilities — to the Venezuela intervention in January 2026, investors have watched a scenario they had anticipated for years finally play out: the West no longer just talks about deterrence, it is actually funding it (Financial Content, February 6, 2026).

The American defense budget for fiscal year 2026 reaches $961.6 billion, and the request for 2027 climbs to $1.5 trillion — a 39% increase that would mark, for the first time in history, the Pentagon's base budget alone crossing the symbolic trillion-dollar threshold. I'll say it plainly: seeing these numbers means seeing a West that has finally stopped lulling itself with illusions of perpetual peace. One can lament the price of deterrence, but the alternative — a disarmed West facing Russia, China, Iran, and North Korea — would cost infinitely more, in lives and in freedom.

Lockheed Martin: the giant with a $194 billion backlog

A backlog that guarantees the future

Lockheed Martin, the world's largest defense contractor, is trading near its historic highs, with shares crossing the symbolic $594.95 mark in January 2026 according to historical market data (StatMuse, 2026). Its order backlog stands at roughly $194 billion, nearly two and a half years of guaranteed sales before even signing a single new contract.

For fiscal year 2026, the company has guided sales between $77.5 and $80 billion, with projected earnings per share between $29.35 and $30.25. In the first quarter of 2026, Lockheed reported sales of $18 billion and net income of $1.5 billion, or $6.44 per share (Lockheed Martin, investor relations, 2026).

The Golden Dome program, a quiet catalyst

In March 2026, Lockheed secured a $10 billion expansion contract for the Golden Dome missile defense shield program, the ambitious initiative championed by the Trump administration to protect American territory against emerging ballistic threats. The program's revised cost is now climbing toward $185 billion, a figure that is dizzying but reflects an unavoidable strategic reality.

In April 2026, the Space Force also awarded $3.2 billion in contracts to twelve companies for a constellation of orbital interceptors linked to Golden Dome (Reuters, April 24, 2026). Golden Dome may sound like a somewhat theatrical name, but the ambition behind it is serious: building a missile shield that genuinely protects the North American continent. Trump is right to keep pushing this file hard — it's exactly the kind of strong posture that deters Moscow and Beijing from testing our limits.

RTX Corporation: the sector's heaviest backlog

Growth that keeps beating expectations

RTX Corporation, born from the merger of Raytheon and United Technologies, holds the largest order backlog of the three American giants: between $268 and $271 billion, split roughly evenly between its commercial segment ($162 billion) and its defense segment ($109 billion). The company raised its 2026 adjusted sales guidance to between $92.5 and $93.5 billion, with adjusted earnings per share expected between $6.70 and $6.90.

In the first quarter of 2026, RTX beat analyst consensus for a fourth consecutive quarter, with adjusted earnings of $1.78 per share against an expected $1.52 (Foreign Policy Journal, June 14, 2026). The stock has climbed roughly 30% over the past twelve months.

Patriot missiles and integrated systems: demand isn't slowing

Demand for the Patriot missile defense systems produced by RTX continues to outpace current production capacity. Deliveries promised to Ukraine and NATO's European allies add to domestic American orders, creating supply-chain pressure the company is trying to resolve through capacity investment.

This situation illustrates a broader phenomenon: the war in Ukraine, now in its fifth year, has turned occasional demand into structural demand. Governments are no longer ordering to replenish one-off stockpiles — they are ordering for decades of continuous deterrence. It strikes me every time: every Patriot missile shipped to Kyiv is concrete proof that the West hasn't abandoned Ukraine, no matter the ambient media fatigue. Zelensky keeps fighting because we keep delivering — and that's a moral debt we owe him to the end.

Northrop Grumman: the third pillar, quiet but solid

A record $96 billion backlog

Northrop Grumman closed fiscal year 2025 with a record order backlog exceeding $95 billion, fueled by more than $46 billion in new contracts won during 2025 alone. In the first quarter of 2026, that backlog eased slightly to $95.6 billion, a level management still calls historic (SEC, Northrop Grumman earnings release, April 21, 2026).

CEO Kathy Warden described the current environment as "the most robust" of her career. 2026 sales are projected between $43.5 and $44 billion, with adjusted earnings per share between $27.40 and $27.90.

The B-21 Raider, a long-term bet

The B-21 Raider stealth bomber program remains the centerpiece — and the riskiest piece — of Northrop Grumman's portfolio. The company plans to invest roughly $2.5 billion over several years to accelerate its production rate, while still carrying a $1 billion loss provision on that same program in the first quarter of 2026.

Despite these occasional headwinds, first-quarter net income jumped 82% to $875 million, or $6.14 per diluted share, up from $3.32 a year earlier. The B-21 is expensive and it hurts margins in the short run, but this is exactly the kind of patient investment the West needs. You don't build strategic air superiority by chasing quarterly profit — you build it by accepting today's discomfort for tomorrow's security.

The security supercycle: an economic paradigm shift

From burden-sharing to industrial integration

Market analysts now openly talk about a "security supercycle" or a "deterrence economy" to describe this moment. This is no longer a classic cyclical bump in military spending tied to a one-off crisis — it is a structural reorientation of Western budget priorities that looks set to last at least a decade.

The iShares U.S. Aerospace & Defense ETF (ITA) has returned more than 38% since the start of 2026, a performance that crushes average American stock market returns (Techi, 2026). Institutional portfolio managers, once wary of defense stocks for ethical or ESG reasons, are now rushing into the sector.

NATO's 5% commitment changes everything

The NATO summit formalized an ambitious new target: raising member-state defense spending to 5% of gross domestic product, up from the historic 2% threshold adopted at the Wales summit in 2014. This commitment, sometimes called the "Hague commitment," mechanically reshapes the addressable market size for Western defense manufacturers (NATO, defence expenditures and NATO's 5% commitment).

For European countries, this shift implies painful budget choices — health care, education, and civilian infrastructure could see their envelopes squeezed to fund this military buildup. I won't pretend this choice is easy or free of social cost. But after decades of a poorly reinvested peace dividend, Europe is now paying the price of its post-Cold War strategic complacency. Better to pay now than to pay later in lost territory.

Institutional investors change their tune

The end of the ESG taboo on defense

For a long time, many pension funds and European asset managers systematically excluded defense stocks from their portfolios in the name of environmental, social, and governance criteria. That taboo has been eroding rapidly since 2024, as even traditionally pacifist Nordic funds revise their exclusion policies.

This shift reflects a broader realization: in a world where Russia is waging a war of aggression in Europe, where China keeps escalating provocations around Taiwan, and where Iran and North Korea continue developing their ballistic capabilities, financing Western deterrence is no longer seen as unethical — it's seen as a condition of democratic survival.

Small caps ride the wave too

Beyond the three giants, a multitude of mid-sized companies are benefiting from this dynamic: drone manufacturers, electronic-warfare specialists, military cybersecurity firms. These more agile players are capturing a growing share of new contracts, especially in emerging technology segments where rapid innovation matters more than industrial scale.

The United Kingdom illustrates this broader trend well: the FTSE 350 Aerospace & Defense index jumped nearly 5% after the announcement of a $20 billion British investment plan, with companies like BAE Systems, Babcock, Chemring, and Rolls-Royce posting sharp gains (CNBC, July 1, 2026). Seeing London join this movement reassures me: it isn't just Washington carrying the weight of Western deterrence. When the whole democratic camp invests together, the message sent to Moscow and Beijing is infinitely more credible.

The risks markets prefer to ignore

Dependence on a limited number of programs

Despite the stock-market euphoria, cautious analysts point out that this growth rests on a relatively small number of flagship programs — B-21, Golden Dome, F-35, Patriot — whose technical execution remains complex and sometimes subject to cost overruns. Northrop Grumman's B-21 case, with its still-active loss provision, illustrates this underlying operational fragility.

An acceleration in production rate, like the one planned for the B-21, requires significant capital investment that doesn't immediately translate into profit — a bet that markets today seem willing to reward in advance rather than on delivered results.

Political and budget risk over the medium term

Nothing guarantees that this spending trajectory will hold indefinitely. A change of majority in the American Congress, European electoral fatigue over budget sacrifices, or an unexpected diplomatic de-escalation could slow this dynamic. Investors rushing into this sector today are essentially betting on the continuity of elevated geopolitical tension for at least a decade.

It's a weighty bet: it implicitly assumes that confrontation with Russia, China, Iran, and North Korea will remain the norm rather than the exception in the years ahead. I would be dishonest to claim otherwise: hoping for a rapid de-escalation would be naive. Putin has shown no sign of strategic retreat, China isn't backing down on Taiwan, and Tehran keeps playing its nuclear double game. Markets are probably right to bet on the long haul.

Europe accelerates its own industrial autonomy

Berlin and Paris invest massively

Beyond the American giants, Europe is methodically building its own defense industrial base. Germany has multiplied investment announcements in its production capacity for munitions, armored vehicles, and air-defense systems, seeking to reduce its historic dependence on American suppliers for certain critical equipment.

This European buildup doesn't replace the transatlantic partnership — it complements it. European and American manufacturers increasingly explore co-production arrangements, where American technologies are manufactured on European soil to speed up deliveries and strengthen shared supply chains against a possible prolonged escalation.

An industry transformed for a generation

Defense company executives now talk about planning horizons of ten to fifteen years, a timeframe unheard of since the end of the Cold War. Factories are modernizing, munitions production lines are doubling or tripling capacity, and a new generation of engineers is heading toward a sector long considered in structural decline.

This industrial renewal has concrete economic ripple effects: skilled job creation, research and development investment, and a partial reindustrialization of Western regions whose manufacturing base had been eroding for decades. There's something deeply ironic, and yet comforting, in seeing the need to defend ourselves revive an industry that globalization had left behind. History sometimes has a cruel sense of humor.

What this means for the Western taxpayer

Rising bills, mounting justifications

For the average citizen in Berlin, Paris, Ottawa, or Washington, this stock-market euphoria translates concretely into higher tax pressure or painful budget trade-offs. Funding an American defense budget that could reach $1.5 trillion in 2027 doesn't come without consequences for other public spending lines.

Western governments must now justify these choices to populations that are sometimes skeptical, especially amid already-strained costs of living. The democratic legitimacy of this arms race will depend largely on leaders' ability to clearly explain why deterrence costs this much.

A bet that must stay under democratic control

History teaches that military-industrial complexes, once launched, develop their own political inertia and can escape normal democratic control. President Eisenhower himself warned of this risk back in 1961, and that warning remains burningly relevant as Western defense budgets hit historic highs.

Maintaining rigorous parliamentary oversight, transparent bidding processes, and independent evaluation of the efficiency of every dollar spent remains essential if this security supercycle is to genuinely serve collective security rather than the sole shareholder interests of manufacturers. This may be my most important point in this piece: defending the West doesn't mean signing a blank check to the military industry. One can be pro-defense while simultaneously demanding rigorous accountability for every dollar spent.

Asian allies join the movement

Japan, South Korea, Australia: the race widens

The phenomenon isn't confined to the North Atlantic. Japan, South Korea, and Australia are also raising their defense budgets at an accelerated pace, worried by Chinese expansionism in the South China Sea and repeated North Korean ballistic provocations. These countries are becoming increasingly important customers for American and European defense manufacturers.

This strategic convergence between the Atlantic and the Pacific reinforces the idea of a broadened Western front, now including Asian democracies that share the same concerns about Chinese and North Korean authoritarianism.

A truly global deterrence architecture

This expanded architecture changes the very nature of the Western defense market: it is no longer a purely transatlantic market, but a truly global network of democracies increasingly coordinating their equipment purchases, technical standards, and deterrence doctrines against an increasingly cohesive authoritarian axis linking Moscow, Beijing, Tehran, and Pyongyang.

This deepening coordination between Western and Asian allies may be the most significant geopolitical transformation of this decade, still largely underestimated by media coverage that remains too focused on Western capitals alone. We don't talk enough about this Pacific-Atlantic alliance being built right in front of us. It may be the best geopolitical news of the decade: a truly global democratic front standing up to the authoritarian axis.

Trump's ambiguous but necessary role in this equation

Pressure that is paying off with allies

It must be acknowledged, even by those who remain critical of the American president on other files: the pressure exerted by Donald Trump on European allies to raise their defense spending has produced tangible results. NATO's 5%-of-GDP commitment would probably never have come to be without this insistence, blunt as it sometimes was, but effective.

European governments that had balked for years at even honoring the 2% threshold now find themselves investing massively, partly out of renewed strategic conviction, partly out of fear of losing the American security umbrella if targets aren't met.

Strategic coherence on the military front

On this specific file of Western rearmament, the Trump administration shows a strategic coherence that deserves credit, even from those who remain wary of other aspects of its domestic policy. The Golden Dome program, the pressure on NATO allies, and continued — if imperfect — support for Ukraine's defense effort all fit into a coherent logic of deterrence.

This coherence on the military front contrasts, incidentally, with the more troubling turbulence of his domestic policy, but it deserves to be named for what it is: a real contribution to strengthening the Western posture against authoritarian regimes. I'm not one to hand out compliments to Trump easily, but intellectual honesty requires me to acknowledge that his pressure on allied defense spending produced concrete results that years of soft diplomacy had failed to achieve.

Military cybersecurity, a new front of growth

Hybrid attacks change the nature of the threat

Beyond tanks, aircraft, and missiles, a new category of spending is exploding in Western budgets: military cybersecurity. Hybrid attacks carried out by actors affiliated with Russia, China, and North Korea against critical Western infrastructure — power grids, financial systems, military communication networks — have forced a complete reassessment of defense priorities.

Major defense companies are investing heavily in this digital dimension of modern conflict, buying up specialized cyberdefense startups and integrating electronic-warfare capabilities directly into traditional platforms like fighter jets and warships.

A still-fragmented market undergoing consolidation

Unlike the market for major weapons systems, dominated by a handful of established players, the military cybersecurity market remains fragmented between multiple innovative startups and traditional giants trying to catch up technologically in this fast-evolving field.

This ongoing consolidation could reshape the sector's hierarchy in the coming years, as the ability to protect digital systems becomes as strategic as the ability to produce missiles or fighter jets. We still underestimate this dimension of modern conflict far too often. The next major confrontation may not be fought only on a physical battlefield, but just as much inside our power grids and our financial systems.

Drones and low-cost warfare reshape demand

The Ukrainian lesson applied at industrial scale

The war in Ukraine has taught Western military planners a crucial lesson: cheap, mass-produced drones can neutralize equipment costing tens of millions of dollars. This lesson is profoundly reshaping the acquisition priorities of Western militaries, which are now investing heavily in large-scale drone production capacity.

Companies specializing in unmanned systems are capturing a growing share of new military contracts, often at the expense of traditional manned-aircraft programs whose per-unit costs are becoming hard to justify against the demonstrated effectiveness of cheap drone swarms.

A cost-effectiveness ratio that is upending doctrines

This doctrinal shift may represent the most profound change in Western military thinking since the end of the Cold War. Western military strategists now systematically factor the cost-effectiveness ratio of low-cost systems into their acquisition doctrines, an approach long neglected in favor of ever more sophisticated and expensive platforms.

Traditional manufacturers, led by Lockheed Martin, RTX, and Northrop Grumman, are gradually adapting to this new reality by developing their own low-cost product lines, aware that the sector's future will not be decided on prestige platforms alone. This might be the best news in this whole story: Western deterrence doesn't need to be only expensive to be effective. Ukraine showed us that ingenuity and cleverness sometimes count for more than raw budget.

What financial analysts predict next

Quarterly results under close watch

The upcoming quarterly results from Lockheed Martin, RTX, and Northrop Grumman, expected in the coming weeks, will be scrutinized with particular attention by investors seeking confirmation that this upward dynamic rests on solid fundamentals rather than mere speculative exuberance.

Analysts at Zacks Investment Research and other specialized firms maintain largely positive outlooks for the sector, while flagging the need to closely monitor execution on major programs and companies' ability to convert record backlogs into real, sustainable profits (Zacks Investment Research, 2026).

A sector redefining its own horizon

What seems certain, beyond normal quarterly fluctuations, is that the Western defense sector has changed paradigm. It is no longer a traditional cyclical sector rising and falling with one-off crises, but a structural pillar of the Western economy for the coming decade, however uncomfortable that reality may seem to some.

This profound transformation deserves to be followed with the same analytical rigor as any other major economic sector, without complacency or excessive vilification, always keeping in mind what these numbers actually represent: the West's capacity to defend itself in an increasingly dangerous world. I'll close this analysis with a simple conviction: tracking these stock numbers isn't a cynical exercise. It's a concrete way of measuring whether the West truly keeps its deterrence promises, or just talks loudly without acting.

Conclusion: an industry that has become the mirror of our collective choices

The price of strategic clarity

What this surge in defense stocks reveals goes far beyond mere financial calculations. It reflects a change of era: the West, after decades of a poorly managed peace dividend, is rediscovering a strategic clarity that comes at a price, but has no acceptable substitute in the face of converging threats from Russia, China, Iran, and North Korea.

The $550 billion in combined order backlogs at Lockheed Martin, RTX, and Northrop Grumman are not mere accounting figures — they represent a concrete Western commitment to its own collective security, to Ukraine still fighting for its survival, and to Asian allies facing their own existential threats.

Staying vigilant without slipping into blind militarism

It now falls to Western citizens, their elected officials, and their media to maintain constant democratic vigilance over this security supercycle, so that it truly serves collective deterrence rather than the sole financial interests of a sector in full euphoria. The difference between necessary defense and uncontrolled militarism lies precisely in this constant vigilance.

History will judge whether this Western generation found the right balance between the force needed to deter its adversaries and the wisdom needed not to be devoured by its own war machine. If I had to sum up this whole story in one sentence: the West is right to rearm, but it will be wrong if it forgets why it's doing so. Force must remain in the service of freedom, never the other way around.

By Maxime Marquette, columnist

Columnist's transparency note

Who I am and my acknowledged biases

I am a columnist and analyst, not a certified financial investigative journalist. My view of this story is openly pro-Western and favorable to coherent democratic rearmament in the face of authoritarian regimes. I believe Western military deterrence is necessary in the current geopolitical context, and this conviction inevitably colors my analysis, even as I strive to remain rigorous about the facts and figures cited.

I also recognize a tension in my own argument: I praise Trump's pressure on the military file while remaining critical of several aspects of his domestic policy in other pieces. This nuance reflects my conviction that each issue deserves to be judged on its own merits rather than on blanket support for or rejection of a political figure.

What I don't know and my method

I cannot predict with certainty whether this defense stock supercycle will hold in the years ahead, or whether current backlogs will fully translate into real profits without major cost overruns, as has already happened with the B-21 program. Financial markets remain unpredictable by nature, and I make no claim to offer investment advice.

My method consists of cross-referencing official company statements, filings submitted to the SEC, and analysis from several recognized financial media outlets to establish the facts presented in this piece. The opinions expressed in the italicized passages are entirely my own and are clearly identified as such.

Sources

Primary sources

Lockheed Martin, first-quarter 2026 financial results — 2026

SEC, Northrop Grumman earnings release — April 21, 2026

Reuters, Golden Dome Space Force contracts — April 24, 2026

NATO, defence expenditures and NATO's 5% commitment — 2026

Secondary sources

Zacks Investment Research, best defense stocks — 2026

Financial Content, the security supercycle — February 6, 2026

CNBC, UK defense investment plan — July 1, 2026

Foreign Policy Journal, record backlogs at the three defense giants — June 14, 2026

Techi, defense ETF performance in 2026 — 2026