Leidos: The AI-Driven Defense Powerhouse in a $850B Spending Surge

The U.S. defense budget is soaring to record heights, and one company is perfectly positioned to capitalize: Leidos (LDOS). With AI integration at its core and a roster of high-profile federal contracts, Leidos is the go-to player for the Pentagon's push into advanced technologies. This is a stock that could soar as the military spends $849.8 billion this fiscal year—and much of that cash is flowing straight to AI-driven systems.

Let's dive into why this is a buy.

The Defense Spending Bonanza: Where Leidos Fits In

The Pentagon's 2025 budget prioritizes AI, cybersecurity, and modernizing systems to counter adversaries like China and Russia. Leidos isn't just along for the ride—it's driving the bus.

Take their recent wins:
1. The DARPA INGOTS Contract ($8.8M):
Leidos is building AI tools to automate vulnerability detection in military mobile systems. Using graph neural networks and large language models, their INGOTS program will slash the time it takes to patch high-risk cyber weaknesses. This isn't just tech—it's a direct response to the Pentagon's $14.5 billion cybersecurity budget and the 30,000+ cyberattacks federal systems face annually.

1. DTRA IT Modernization ($205M):
   This five-year deal tasks Leidos with overhauling DTRA's IT systems using AI and Zero Trust architecture. Think of it as a “digital detox” for the agency's networks, enabling resilient hybrid cloud infrastructure. With the Pentagon's RDT&E budget hitting $143.2 billion, this is a drop in the bucket for Leidos' future pipeline.

2. DISA Cross-Domain Data Project ($35M):
   Leidos is modernizing the systems that share classified data across military networks—a mission critical for the Combined Joint All-Domain Command and Control (JADC2) initiative. This $1.4 billion Pentagon priority aims to link air, land, sea, and space domains into a seamless AI-driven network. Leidos is already there.

The AI Advantage: Why Leidos Can't Be Ignored

Leidos isn't just a contractor—it's a technology innovator. Their NorthStar 2030 strategy and $300M acquisition of Kudu Dynamics (a cybersecurity AI firm) prove they're doubling down on AI's role in defense. Consider their Enduring Shield system, which uses AI to intercept drones and missiles—a capability that earned them the $631M DIABLO Program Contract.

The math here is simple: AI is the future of defense, and Leidos is leading the charge.

Risks? Sure. But the Upside Outweighs Them

Critics might point to a recent downgrade by analyst firm Baird, citing contract terminations and slower government spending. But here's the counter:
- Leidos' revenue hit $16.7 billion in FY2025, with a strong current ratio of 1.54. They're financially solid.
- Their AI-driven wins (like the NIH's $326.5M eRA system modernization) are sticky contracts with long tails.
- The Pentagon's budget is a $850B machine—and Leidos is in the sweet spot of AI, cybersecurity, and nuclear modernization (see their Columbia-class sub and B-21 bomber work).

The Bottom Line: Buy the Dip

Leidos is a buy for investors willing to bet on U.S. military tech dominance. The stock is trading at 17.5x trailing EBITDA—a discount to peers like Lockheed Martin and Raytheon given its AI-first focus.

Action Plan:
- Buy if: The stock dips below $55.
- Hold for: 3–5 years as AI contracts ramp up.
- Avoid if: You're a short-term trader—this is a slow burn.

The writing is on the wall: The U.S. is doubling down on defense tech, and Leidos is the AI kingpin in this arena. This isn't just a play on a budget number—it's a bet on the future of warfare.

Disclosure: This is not financial advice. Always consult a professional before investing.