The Geopolitical Surge in Defense Spending: How the Ukraine Conflict is Fueling a New Era of Aerospace and Missile Defense Growth

The halt of U.S. defense shipments to Ukraine in early June 2025, driven by critically low stockpiles of critical munitions, has exposed a stark reality: the Ukraine-Russia conflict is no longer just a regional war but a catalyst for a structural shift in global defense spending. With Russia intensifying drone and missile barrages—477 drones and 60 missiles in a single weekend—the Pentagon's decision to prioritize restocking its own arsenals underscores a new era of demand for air defense systems, precision munitions, and counter-drone technologies. This geopolitical pressure is fueling unprecedented opportunities for U.S. defense contractors, as governments worldwide rush to modernize their arsenals against hybrid threats.

The Pentagon's Balancing Act: Restocking Amid Global Threats

The U.S. military's stockpile concerns are severe. Patriot missile interceptors, 155mm artillery shells, and Hellfire missiles have reached critically low levels due to dual demands: supporting Ukraine and confronting threats from Iran and Houthi rebels. The Army's plan to quadruple Patriot interceptor procurement highlights the urgency, yet production constraints persist. Lockheed Martin, the sole U.S. producer, makes 500 Patriots annually, aiming for 650 by 2027—a pace far slower than the Pentagon's needs.

This shortfall has geopolitical consequences. Analysts warn that reduced U.S. support could weaken Ukraine's leverage in peace talks and embolden Russia's attrition strategy. Simultaneously, the conflict has intensified global defense competition. NATO allies, Japan, and the Indo-Pacific region are accelerating investments in missile defense, creating a sustained demand cycle for American contractors.

Companies Leading the Charge: Missiles, Drones, and Hypersonics

The defense sector is not a monolith—certain firms are uniquely positioned to capitalize on this shift.

Raytheon Technologies (RTX): The Air Defense Titan
Raytheon's PAC-3 MSE missiles and Patriot systems are indispensable to countering Russian hypersonic threats like the Kinzhal. With a backlog of $68 billion, RTX has already secured $3 billion in Ukraine-related orders since 2022. Production of PAC-3 MSE has surged by 116% since 2022, reaching 48.6 units monthly.
RTX's stock has outperformed the S&P 500 by 40% since 2022, reflecting sustained demand.

Lockheed Martin (LMT): HIMARS and Hypersonic Edge
Lockheed's HIMARS rocket launchers and GMLRS rockets are Ukraine's artillery backbone. The company's $70 billion backlog includes contracts for Long-Range Precision Fires (LRPF), a system vital to U.S. modernization. Despite supply chain hurdles, production of GMLRS rockets has risen 40% since 2022.

L3Harris (LHX): Countering Drones and Sustaining Partnerships
L3Harris's electronic warfare systems and drone countermeasures are critical to neutralizing Russia's drone swarms. Its $32 billion backlog includes classified Pentagon programs and partnerships with NATO allies. Notably, the firm is aiding Ukrainian forces with technical manuals and sustainment support—a niche few can fill.

Aerojet Rocketdyne (AJRD): The Propulsion Engine
As a key supplier of rocket engines for Patriots and HIMARS, AJRD is a hidden gem in the supply chain. Its role in hypersonic propulsion systems positions it to benefit from U.S. and allied investments in next-generation defense tech.

Risks and Considerations: Supply Chains and Ceasefires

While the outlook is bullish, risks persist. Supply chain bottlenecks—especially shortages of rare earth metals, microchips, and skilled labor—are delaying production. General Dynamics, for instance, cut its business jet forecasts due to "fragile" supply chains. Geopolitical risks also loom: a sudden ceasefire could dampen demand. However, the "geopolitical risk premium" remains entrenched. NATO's defense spending is projected to hit $24 billion annually by 2030, driven by fears of hybrid warfare and hypersonic arms races.

Investment Strategy: Allocate, Diversify, and Stay Patient

For investors, this sector demands a mix of targeted allocations and diversification.

1. Buy on Dips: Accumulate shares of RTX, LMT, LHX, and AJRD when their prices dip below the 50-day moving average. Volatility presents opportunities to build positions in firms with structural growth.
2. Prioritize Liquidity and Margins: Firms like L3Harris and Aerojet, with strong cash reserves and improving margins, are better positioned to navigate supply chain constraints.
3. ETF Exposure: Funds like the iShares U.S. Aerospace & Defense ETF (ITA) offer broad exposure, with ITA up 25% year-to-date.
4. Long-Term Allocation: Allocate 5-10% of a portfolio to defense stocks, focusing on hypersonic expertise (RTX, LMT) and firms with global supply chain resilience.

Conclusion: A Decade of Defense Growth Ahead

The Ukraine conflict has rewritten the rules of defense procurement. With Russia's aggression showing no signs of abating and global defense budgets surging, the aerospace and missile defense sectors are primed for a decade of growth. Investors who recognize this shift early can profit from companies turning geopolitical tensions into sustained profitability. The question is not whether to engage—but how to do so strategically, while accounting for the risks that come with it.

Analysts project global air defense spending to reach $24 billion annually by 2030, driven by hybrid warfare threats.