U.S. Defense Sector Opportunities: Capitalizing on Trump's Military Modernization Push
The U.S. defense sector is undergoing a transformative phase under President Donald J. Trump's renewed focus on military modernization. With the Trump administration's 2026 defense budget proposing a staggering $1 trillion in spending over the next fiscal year—driven by the One, Big Beautiful Bill Act—the sector is poised for significant capital reallocation. This analysis examines long-term investment opportunities in defense contractors tied to two critical programs: the Patriot missile system upgrades and the F-35 fighter jet production, while weighing the risks and rewards of this strategic shift.
Patriot System Upgrades: A Cornerstone of Air Defense
The Trump administration's emphasis on countering emerging threats has elevated the Patriot missile system to a central role in U.S. and allied air defense. The Defense Logistics Agency's intent to award a 20-year, $50 billion sole-source contract to Raytheon Technologies (RTX) for Patriot system production and support underscores this commitment [2]. This contract, structured with a five-year base term and three five-year options, ensures sustained demand for hardware, software, and logistics services.
Raytheon's financial performance reflects the program's strategic importance. In Q2 2025, the company reported a 36% rise in defense operating profit, driven by increased Patriot demand, particularly in Europe and Ukraine [3]. Raytheon is also scaling production, aiming to double output by 2028–2030, though supply chain bottlenecks for critical components like GEM-T warheads pose near-term challenges [2]. Meanwhile, Lockheed MartinLMT-- secured a $9.8 billion contract for 1,970 Patriot interceptors, marking its largest-ever award in the Missiles and Fire Control segment [5]. This multi-year deal, spanning FY24–FY26, highlights the Pentagon's prioritization of layered missile defense amid global instability.
F-35 Program: Navigating Delays and International Dynamics
The F-35 Lightning II program remains a linchpin of U.S. air superiority, yet its trajectory under Trump's budget is complex. While LockheedLMT-- Martin is on track to deliver 170–190 F-35s in 2025—a 53% increase over 2024—domestic and international headwinds loom. The Air Force has slashed procurement to 24 jets in FY26, down from 44 in FY25, as it shifts focus to next-gen fighters like the F-47 [5]. Internationally, Trump's trade policies have prompted allies such as Spain and Switzerland to reconsider F-35 orders, creating uncertainty for long-term production rates [3].
Despite these challenges, Lockheed's Q1 2025 results highlight resilience: $18 billion in sales and $1.7 billion in net earnings, albeit with profit warnings tied to TR-3 software integration delays [1]. The company is also embedding Block 4 upgrades—enhancing stealth coatings and weapon systems—into 2025 production lots, positioning the F-35 for future relevance [4]. However, the Pentagon's proposed $50 billion annual budget cuts over five years, targeting civilian personnel and non-core programs, could strain the F-35's funding envelope [5].
Financial Performance and Analyst Outlooks
Both Raytheon and Lockheed Martin have demonstrated robust financials, supported by defense sector tailwinds. Raytheon Technologies reported Q2 2025 revenue of $21.6 billion, a 9% year-over-year increase, with defense profits surging on Patriot demand [3]. Analysts project Lockheed's Q3 2025 revenue at $18.44 billion, with EPS of $6.32, reflecting confidence in its missile and aerospace divisions [6].
Wall Street's cautious optimism is evident in earnings estimates. For example, Wedbush analysts note that while Raytheon's Patriot production challenges could temper short-term margins, its industrial partnerships in the EU and pent-up global demand create a “high-conviction” investment case [5]. Similarly, Lockheed's FY26 budget alignment with next-gen fighter development and missile defense could offset F-35 headwinds, though profit margins may remain pressured by R&D costs [2].
Challenges and Strategic Risks
Investors must weigh several risks. First, the Pentagon's proposed 8% annual budget cuts, while targeting non-essential spending, could indirectly impact programs like the F-35 if fiscal constraints intensify. Second, international pushback against Trump's trade policies—exemplified by European allies' F-35 hesitations—may disrupt export markets. Third, production bottlenecks for both Patriot and F-35 systems, including software integration and component shortages, could delay timelines and inflate costs.
Conclusion: A Long-Term Play on Strategic Priorities
The U.S. defense sector's trajectory under Trump's modernization agenda offers compelling opportunities for long-term capital allocation. Raytheon Technologies and Lockheed Martin, with their entrenched roles in Patriot and F-35 programs, are well-positioned to benefit from sustained demand for air and missile defense. However, success hinges on navigating near-term challenges—budgetary constraints, production hurdles, and geopolitical shifts—while capitalizing on next-gen initiatives like the B-21 bomber and F-47 fighter. For investors with a multi-year horizon, these contractors represent a blend of defensive resilience and innovation-driven growth.
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