Tax Cuts and Fiscal Crossroads: Navigating Opportunities in Defense, Infrastructure, and Tech
107min read The Trump administration’s proposed $5 trillion tax cut plan, dubbed the One, Big, Beautiful Bill, has ignited a firestorm of debate over its fiscal sustainability. While critics warn of soaring deficits and debt, investors are parsing the legislation for hidden opportunities. This article dissects the plan’s sector-specific impacts and identifies undervalued equities poised to capitalize on its provisions—despite the looming risks.
The Tax Plan’s Core Provisions: Winners and Losers
The bill’s cornerstone is the permanent extension of the 2017 TCJA tax cuts, which slashed individual rates and set a flat 21% corporate tax rate. Additional measures include expanded deductions for small businesses, border security spending, and the phase-out of electric vehicle (EV) tax credits, reversing Biden-era incentives. While these cuts could boost economic activity, the Congressional Budget Office estimates deficits could balloon to $149 trillion of GDP by 2035, pressuring Treasury yields and equity valuations.
Sector Spotlight: Defense and Infrastructure—Fiscal Tailwinds Ahead
The bill’s $880 billion in Medicaid cuts and border spending allocations are set to supercharge defense and construction sectors.
Defense Contractors Lead the Charge
The legislation’s focus on border security and military readiness has created a tailwind for aerospace giants like Boeing (BA) and Lockheed Martin (LMT). Both companies benefit from rising global defense budgets, particularly in the Middle East and Europe.
- Boeing (BA): Despite its well-documented struggles, Boeing is now 15% undervalued according to analysts, with its backlog of 737 MAX orders and defense contracts (e.g., MQ-28A Ghost Bat drones) offering growth.
- Lockheed Martin (LMT): A 13% discount to fair value, Lockheed’s dominance in missile systems and fighter jets positions it to profit from U.S. and Saudi Arabia’s military modernization.
Infrastructure Plays: Building a New Era
The bill’s spending on border infrastructure and energy projects has fueled demand for engineering and construction firms.
- Fluor (FLR): A 26% undervalued small-cap leader, Fluor’s expertise in complex projects—from semiconductor factories to renewable energy—aligns with the bill’s priorities.
- Wesco International (WCC): At a 20% discount, Wesco’s electrical equipment supplies are critical for grid upgrades and manufacturing facilities.
Tech’s Pivot: Semiconductors and the Tax Cut Boost
The bill’s provisions to slash corporate tax rates for manufacturers and close loopholes (e.g., carried interest) favor tech firms investing in U.S. chip production.
- ASML Holding (ASML): A 22% undervalued leader in semiconductor equipment, ASML’s photolithography systems are indispensable for U.S. fabs (e.g., NVIDIA’s Ohio plant). Its backlog of orders and pricing power make it a buy.
Risks to the Rally: Fiscal Realities and EV Fallout
The plan’s $5 trillion deficit boost has already pushed the 10-year Treasury yield to 4.5%, raising borrowing costs for companies and consumers. Meanwhile, the EV tax credit phase-out threatens automakers reliant on federal subsidies.
- Traditional Automakers: While Ford (F) and Toyota (TM) face headwinds from lost tax credits, investors should focus on their non-EV divisions (e.g., trucks, SUVs) and geographic diversification.
- Gig Economy: The bill’s proposed tax relief for gig workers could benefit platforms like Uber (UBER), though its valuation remains speculative.
Investment Thesis: Act Now—But Stay Vigilant
The One, Big, Beautiful Bill creates a high-reward, high-risk environment. Investors should prioritize:
1. Defensive exposure via Boeing, Lockheed, and Fluor, which benefit directly from government spending.
2. Tech bets on ASML and semiconductor-linked equities, which leverage tax cuts for manufacturers.
3. Avoid overvalued sectors: Retail (Home Depot, Walmart) and EV stocks (Tesla) remain vulnerable to rising rates and policy shifts.
While the bill’s debt risks loom large, the near-term fiscal stimulus and sector-specific tailwinds make defense, infrastructure, and tech the clearest paths to capital gains. Act decisively—but keep an eye on Treasury yields.
The time to position for this tax-driven shift is now.
