Global Defense Spending Surge in 2025–2030: Identifying High-Conviction Defense and Aerospace Stocks for Long-Term Growth

The global defense sector is undergoing a seismic shift. According to a report by SIPRI, global military expenditure reached $2.7 trillion in 2024, marking a 9.4% real-term increase compared to 2023-the largest annual rise since the end of the Cold War. This surge is driven by escalating geopolitical tensions, regional conflicts, and a strategic pivot toward military modernization. As defense budgets expand across Europe, the Middle East, and Asia, investors are increasingly turning to defense and aerospace stocks to capitalize on this long-term trend. This analysis identifies high-conviction stocks poised to benefit from the projected $6.6 trillion global defense spending by 2035.

Regional Breakdown: Where the Growth Is Concentrated

Europe remains a critical battleground for defense investment. The region's military spending surged by 17% in 2024 to $693 billion, fueled by the Ukraine war and NATO's push for self-reliance. Germany, now Western Europe's largest military spender, increased its budget by 28% to $88.5 billion, while Poland saw a 31% rise. The European Union's European Defence Industrial Strategy (EDIS) aims to source 50% of defense equipment from European suppliers by 2030, creating a $184.24 billion market by 2030. Programs like the Future Combat Air System (FCAS) and the Global Combat Air Programme are accelerating demand for advanced manufacturing and R&D capabilities.

The Middle East is also witnessing a defense boom. Israel's military spending jumped 65% to $46.5 billion in 2024 due to conflicts in Gaza and Lebanon, while the UAE's defense budget is projected to grow at a 4.5% CAGR, reaching $30.2 billion by 2030. Saudi Arabia's Vision 2030 initiative is driving local defense production, with contracts for Eurofighter Typhoons and THAAD systems underscoring its modernization push.

Asia is another hotspot, with Japan's defense budget rising 21% to $55.3 billion in 2024 and China increasing its spending by 7% to $314 billion, focusing on cyberwarfare and nuclear capabilities. South Korea and India are also ramping up investments, creating a fertile ground for aerospace and defense contractors.

Key Drivers of Growth: Technology, Geopolitics, and Policy

The defense sector's growth is underpinned by three pillars: technological innovation, geopolitical instability, and policy-driven procurement. The U.S. Department of Defense's emphasis on AI, hypersonic weapons, and space-based systems is reshaping the industry. For example, the U.S. National Defense Authorization Act allocated $900 billion in 2026, prioritizing modernization and AI integration.

Geopolitical tensions, from the Russia-Ukraine war to U.S.-China rivalry, are ensuring sustained demand. The UN has warned that unchecked spending could exacerbate global inequalities, but for investors, this volatility translates into long-term stability for defense stocks.

Policy shifts, such as Europe's push for domestic supply chains and the UAE's partnerships with Turkey and South Korea, are creating new opportunities for regional contractors.

High-Conviction Stocks: Aligning with Regional and Technological Trends

1. U.S.-Led Innovators
- RTX (Raytheon Technologies): With a $251 billion contract backlog and 12% sales growth in Q3 2025, RTX is capitalizing on demand for missile systems, cyber defense, and hypersonic technology. Its integration of United Technologies' aerospace expertise positions it to benefit from both defense and commercial markets. - Kratos Defense & Security Solutions: Kratos' unmanned systems segment grew 35.8% in 2025, driving a 196% stock price surge. Its focus on AI-enabled drones and electronic warfare aligns with U.S. and NATO modernization goals.
- Lockheed Martin (LMT): As the lead contractor for the F-35 program and next-gen stealth bombers, LMT is set to benefit from the U.S. defense budget's 5.7% increase to $997 billion in 2024.

2. European Powerhouses
- AeroVironment (AVAV): AVAV's drone technology is in high demand for European NATO members seeking to replace aging systems. Its partnerships with German and Polish defense agencies highlight its regional relevance.
- ZTS-SPECIAL (Slovakia): Securing a $1.3 billion role in the CV90 program, ZTS-SPECIAL exemplifies how Tier 2/3 European firms are gaining traction under EDIS.

3. Middle Eastern and Asian Opportunities
- EDGE Group (UAE): Partnering with Turkey's FNSS to produce armored vehicles, EDGE is leveraging the UAE's $30.2 billion 2030 defense budget.
- Mitsubishi Heavy Industries (Japan): With Japan's defense spending rising to 5% of GDP, MHI's F-3 fighter jet program and hypersonic missile development are critical growth drivers.

Conclusion: A Sector Built for Resilience

The defense and aerospace industry is uniquely positioned to thrive in an era of geopolitical uncertainty. With global spending projected to nearly triple by 2035, companies that align with regional modernization efforts and technological innovation will outperform. Investors should prioritize stocks with diversified regional exposure, strong government contract pipelines, and expertise in AI, cyber, and unmanned systems. As the UN warns of the risks of militarization, the market's resilience-driven by predictable government spending and strategic necessity-makes it a compelling long-term investment.