Defense Tech and Federal Contracting Growth: Strategic Investment in Defense IT Firms

The U.S. Department of Defense's (DoD) FY 2025 budget for IT/Cyberspace Activities (IT/CA) reflects a strategic pivot toward cybersecurity and modernization, with total funding reaching $64.1 billion-a 5.7% increase from FY 2023 despite a 1.2% decline from FY 2024's $64.9 billion, according to the DoD IT/CA budget. Cybersecurity now accounts for 23% of the budget, up from 22% in 2024 and 20% in 2023, underscoring the DoD's prioritization of digital resilience amid escalating global threats. Defense-wide efforts, including Command, Control, Communications, Computers, and Intelligence (C4I) systems, received $21.1 billion in FY 2025-a $6.6 billion increase from FY 2024-driven by investments in AI, 5G, and Combined Joint All-Domain Command & Control (CJADC2), as highlighted in the same report.

For institutional investors, this spending trajectory highlights opportunities in defense IT firms with consistent task-order performance and deep government ties. Below, we analyze three firms-Leidos, Lockheed Martin, and ManTech-whose financial strength and alignment with DoD priorities position them as compelling long-term investments.

Leidos: Scaling Cybersecurity and AI-Driven Modernization

According to Leidos FY 2024 results, Leidos reported FY 2024 revenues of $16.7 billion, an 8% year-over-year increase, and a record contract backlog of $46.3 billion as of Q1 2025. The company's adjusted EBITDA margin of 12.9% for FY 2024 reflects operational efficiency, while its book-to-bill ratio of 1.4 signals robust demand. Leidos' backlog is heavily weighted toward DoD priorities, including a DTRA $205M contract to modernize IT systems using AI and Zero Trust principles, and a DoD $35M contract focused on AI, cybersecurity, and cloud computing.

Notably, Leidos secured a $7.9 billion task order to enable rapid IT hardware procurement for the U.S. Army during supply chain disruptions, leveraging AI to optimize logistics. Despite the termination of a $2.4 billion cybersecurity contract with the Department of Homeland Security, the firm's first-quarter 2025 revenue grew 6.8% year-over-year, demonstrating resilience.

Lockheed Martin: AI and Cybersecurity at the Core of Innovation

Per Lockheed FY 2024 results, Lockheed Martin's FY 2024 net sales reached $71.0 billion, with a record $176.0 billion contract backlog. While classified programs generated pre-tax losses of $2.0 billion, the company's free cash flow of $5.3 billion and $6.8 billion returned to shareholders through dividends and repurchases highlight its financial discipline. The firm's Lockheed Martin Artificial Intelligence Center (LAIC) is pioneering AI-driven cybersecurity solutions, including real-time threat detection and multi-agent reinforcement learning for vulnerability assessment, as reported in coverage of Lockheed's Lockheed AI cyber work.

A $4.6 million DARPA contract awarded in July 2024 underscores Lockheed's AI capabilities: the project aims to develop surrogate models for airborne missions, enhancing predictive performance for DoD systems. Additionally, Lockheed's collaboration with Microsoft on secure cloud and 5G.MIL® solutions aligns with the DoD's JADC2 initiative, which requires seamless cross-domain communication. These efforts position Lockheed as a critical player in the DoD's AI and cybersecurity ecosystem.

ManTech: Cybersecurity Leadership in a High-Demand Sector

ManTech's FY 2024–2025 performance exemplifies its dominance in cyber solutions. The firm secured a $1.4 billion task order for the Interagency Intelligence and Cyber Operations Network (ICON), leveraging AI to accelerate mission-critical cyber operations, as detailed in the ManTech ICON task order. In August 2025, ManTech was awarded a $910 million, seven-year contract to provide enterprise-level cyber and data-informed IT services to the U.S. Southern Command (USSOUTHCOM), with a focus on AI deployment.

Financially, ManTech's ability to secure large, multi-year contracts-such as a $269 million Information Warfare deal with the Marine Corps-demonstrates its competitive edge. The company's technical expertise in Cognitive Cyber capabilities and Model-Based Systems Engineering (MBSE) aligns with the DoD's push for agile, AI-enhanced defense systems.

Investment Thesis: Aligning with DoD Priorities

The DoD's FY 2025 budget and contract awards signal a clear shift toward AI, cybersecurity, and cloud integration. Firms like Leidos, Lockheed Martin, and ManTech are not only securing a disproportionate share of these contracts but also reinvesting in R&D to meet evolving demands. For example, the DoD's DoD $200M AI awards to AI firms like Anthropic, Google, OpenAI, and xAI reflects a broader ecosystem where traditional defense contractors and commercial AI leaders collaborate.

Institutional investors should prioritize firms with:
1. Proven Task-Order Performance: Leidos' $46.3 billion backlog and ManTech's ICON task order demonstrate consistent execution.
2. Government Relationships: Lockheed's partnerships with Microsoft and DARPA highlight its ability to navigate classified and commercial AI landscapes.
3. Alignment with DoD Priorities: All three firms have contracts explicitly tied to AI, cybersecurity, and CJADC2, ensuring long-term relevance.

As the DoD's IT/CA budget grows and shifts toward digital modernization, defense IT firms with these attributes are well-positioned to deliver sustained returns.