Dr. Stoxx
Stock Trader & Author, Oxford DPhil, Trading Education
Defense stocks such as Kratos, AeroVironment, Ondas, Northrop Grumman and L3Harris are trading as if global leaders had turned into pacifist hippies, which is probably not the case. x.comÂ
Northrop Grumman's B-21 bomber has reached a profitability inflection, removing a key risk and unlocking significant margin upside. After inflation-driven losses in early production, digital manufacturing gains and a new Air Force agreement have turned the program to positive operating income. A $95.61 billion backlog locks in years of revenue visibility, and B-21 and Sentinel sit in nuclear modernization spending that is essentially untouchable. Space defense adds growth. x.comÂ
Drone stocks fell in 2026 even as backlogs hit records: Ukraine turned aircraft into ammunition, and the Pentagon's 2027 request holds nearly $75B for drones and counter-drone. AeroVironment's reordered loitering munitions and Kratos's jet drones are highest conviction. Counter-drone names Ondas, Axon, Motorola Solutions, Safe Pro, DroneShield and Rheinmetall gain as threats grow, Unusual Machines from Chinese-parts bans. Primes bury drone exposure; pure plays may not convert backlog. x.com … Show more
Defense spending of $1-1.5 trillion and rising NATO budgets are the theme of the decade, making Palantir, Lockheed Martin, RTX, Northrop Grumman and L3Harris the top five defense stocks to own. Palantir is the purest defense-AI play: Q4 revenue jumped 70%, free cash flow reached $2.27B, and a $448M Navy shipbuilding modernization contract shows its government pipeline accelerating. At 232 times earnings, it is priced as the operating system for modern warfare, not a contractor. x.comÂ
Armaments makers should benefit if the Iran conflict drags on or worsens, with ammunition inventories already low. Lockheed Martin and Northrop Grumman are retesting, while suppliers of the essential materials and stocks such as Smith & Wesson follow the narrative. The initial trade is done, but there is much more to come if longer disruptions, more combat or a ground invasion spread fear of escalation. x.comÂ
Government spending is defense's version of AI hyperscaler capex but more dependable, and the market isn't pricing it in. Global defense is seen at $3T+ for 2027 versus about $1T of hyperscaler capex, and the Pentagon seeks $80B in wartime spending on top of a $1.5T budget. With Lockheed Martin, Northrop Grumman, Kratos, AeroVironment, AEVEX and Kraken Robotics 24-58% off highs, capital could rotate back soon, especially if institutions diversify from AI, rewarding contrarians in 3-6 months. … Show more
Northrop Grumman is the higher-quality defense franchise and more clearly net good than L3Harris, because its major work, ICBM modernization, the B-21 and peaceful space programs like James Webb, serves deterrence. Historically, the more lethal a weapon, the greater its impact on peace: about 70,000 nuclear warheads at the Cold War peak were never used. Smaller armaments like L3Harris's are less clear-cut, since trigger-happy administrations blur defense and offense. x.comÂ
A US military-budget increase would be well-timed for defense stocks as most appear to be bottoming or sitting on support. If history repeats, one will probably be announced soon. Since the earlier sell signals, Amprius is down about 42%, AeroVironment about 60% and Ondas about 54%; many other names also look oversold. x.comÂ
Lockheed Martin's strong earnings, raised guidance and a potential historic F-35 deal support its stock as the price presses toward a wedge breakout. Q3 EPS and sales exceeded estimates; the F-35 deal remains potential. x.comÂ
RTX's roughly $51 billion in recent multi-year missile deals and expanding backlog support a bullish setup. Backlog reached $289 billion last quarter, up 22% year over year, and management raised full-year sales, EPS and free cash flow guidance. The trigger is $193.90, with chart targets of $197.35, $200.41 and $202.67. x.comÂ