Defense Stocks: Buy or Avoid?

Defense spending is increasing in the US and EU, leading to a surge in demand for defense stocks. A survey of SA readers found 51.4% of respondents believed now is a good time to buy defense stocks, with many considering companies like Lockheed Martin, Raytheon Technologies, and General Dynamics as potential investment options.

Defense spending in the United States and Europe is on the rise, fueling a surge in demand for defense stocks. A recent survey of SA readers found that 51.4% of respondents believe now is a good time to invest in defense stocks, with many considering companies like Lockheed Martin, Raytheon Technologies, and General Dynamics as potential investment options.

In a significant move to bolster Ukraine’s defenses, the United States and NATO allies have unveiled the Prioritized Ukraine Requirements List (PURL), a new mechanism designed to streamline and finance the delivery of American weapons to Ukraine. Under this initiative, nearly $1 billion has already been allocated by European countries, with a major focus on advanced air defense systems like the Patriot [1]. The PURL initiative operates by compiling a priority list of weapons and ammunition based on Ukraine’s requests, which is then approved by NATO’s Supreme Allied Commander Europe. Funding comes from NATO member states and partners, allowing Ukraine to access U.S. military technology using European resources. The first two aid packages, valued at around $500 million each, are being funded by the Netherlands, Norway, Denmark, and Sweden. This approach, while different from direct U.S. grants, enables Ukraine to receive and maintain vital defense systems, especially the Patriot PAC-3, which remains the only proven shield against ballistic missile threats. The U.S. is ramping up production of these systems to meet growing demand. NATO officials expect the PURL initiative to raise up to $10 billion in its initial phase, signaling a long-term commitment to Ukraine’s security. Alongside PURL, European nations continue to support Ukraine with their own defense products and through EU programs like SAFE, further strengthening Ukraine’s military capabilities [1].

Meanwhile, India has reportedly paused plans to procure U.S. defense equipment, including arms and aircraft from Lockheed Martin, Boeing Co., and General Dynamics, as the diplomatic fallout from President Donald Trump's tariffs strains bilateral ties [2]. The move has affected talks on purchasing U.S. weapons, including combat vehicles and reconnaissance aircraft. India was set to send Defense Minister Rajnath Singh to Washington to finalize deals on items such as Stryker combat vehicles, Javelin missiles, and Boeing P-8I reconnaissance aircraft. However, those talks have stalled, the report said, citing the sources. The cancellation of Singh's trip is the first concrete sign of India's displeasure over the 50% tariff burden imposed on its exports. India's Ministry of Defence called media reports of a pause in the talks "false and fabricated," according to the report. It added that the procurement was proceeding in accordance with "extant procedures" [2].

Despite these challenges, the broader defense sector is experiencing robust growth. The second-quarter 2025 reporting cycle for defense stocks, housed within the broader Zacks Aerospace sector, has already started with a major cohort of S&P 500 defense contractors having delivered their results. Prominent defense primes like Lockheed Martin, Northrop Grumman, Textron, and General Dynamics came up with better-than-expected earnings numbers. Taking a look at the whole picture, we remain optimistic about the second-quarter results of the remaining defense majors, as escalating geopolitical tensions worldwide continue to fuel the demand for defense products and related services. This, in turn, has been boosting order growth and thereby revenue expansion, which should duly get reflected in the defense stocks’ upcoming operating results [3].

References:
[1] https://global.espreso.tv/aid-nato-launches-billion-dollar-purl-initiative-to-fund-us-weapons-for-ukraine-prioritizing-air-defense
[2] https://www.inkl.com/news/lockheed-boeing-general-dynamics-deals-reportedly-delayed-as-india-pauses-us-defense-talks-over-trump-tariffs
[3] https://finance.yahoo.com/news/2-defense-stocks-poised-surpass-123000108.html