Trump’s Pentagon Budget Cuts: Defense Names to Watch

The Biden-era defense budget is facing a major overhaul as President Donald Trump and Defense Secretary Pete Hegseth order a $50 billion reduction in Pentagon spending for fiscal year 2026. The move marks the most significant single-year cut to military funding since the 2013 sequestration, when Congress mandated across-the-board defense spending reductions.

This represents an 8% reduction in the nearly $850 billion defense budget and is designed to reallocate funds toward Trump’s key national security priorities. These include border security enhancements, missile defense modernization, and eliminating spending on diversity, equity, and inclusion (DEI) programs, as well as climate initiatives within the Department of Defense.

The defense and aerospace sector has come under pressure following President Donald Trump’s directive to cut $50 billion from the Pentagon’s budget for fiscal year 2026, marking the largest single-year reduction in military funding since the 2013 sequestration. While the initial reaction has led to a pullback in defense stocks, the selloff may be overdone, as the administration plans to redirect funds toward high-priority programs such as missile defense, border security, and advanced weapons systems.

Additionally, rising military spending in Europe presents another potential tailwind for U.S. defense contractors, as NATO allies move to bolster their own capabilities. In this article, we highlight key defense names that traders should watch, identifying companies that stand to benefit from shifting military priorities despite the overall budget reductions.

Where Will the Cuts Come From?

Unlike previous defense budget reductions that primarily targeted long-term procurement programs, these cuts will likely come from operations, maintenance, and personnel expenditures. Historically, these areas have been the easiest to reduce in the short term, as was seen in 2013, when training programs were scaled back, flight hours for pilots were reduced, and military retention efforts suffered.

Some of the spending reductions will likely impact:

- Diversity and Climate Programs – Funding for DEI initiatives, alternative fuel programs, and military base climate resilience projects will be cut significantly.

- Operations and Training – Non-essential military exercises and readiness operations may see scaled-back funding.

- Pentagon Bureaucracy – Administrative and civilian workforce reductions are on the table, with some employees already receiving warnings about possible layoffs.

However, key military priorities will remain protected, including:

- Missile Defense and Autonomous Weapon Systems – Programs related to the U.S. Indo-Pacific Command, missile defense, and AI-driven autonomous warfare will be spared from cuts.

- Border Security Initiatives – Funding for military operations at the U.S.-Mexico border will increase.

- Nuclear Capabilities and Modernization – Nuclear deterrence programs will continue receiving full funding.

Political Roadblocks and Congressional Battles

The proposed cuts are likely to face strong opposition on Capitol Hill, particularly among Republican defense hawks who have called for increasing military spending to over $1 trillion. Senate Armed Services Committee Chairman Roger Wicker has already expressed concerns over the proposal, warning that reducing Pentagon funding at a time of global instability could weaken the U.S. military’s capabilities.

Meanwhile, Democrats and federal employee unions have raised legal concerns over the sudden dismissal of thousands of civilian Pentagon workers, arguing that such actions could violate labor laws and negatively impact military readiness.

Contradictions Within the Administration

The timing of these cuts also presents a policy contradiction within the Trump administration. While President Trump is pressuring NATO allies to increase their defense spending to 5% of GDP, his own administration is advocating for a reduction in U.S. defense expenditures. Additionally, just weeks before the cuts were announced, Secretary Hegseth himself called for higher military spending to counter threats from China and Russia.

What Comes Next?

The Pentagon must submit a finalized list of proposed cuts by February 24, setting the stage for an intense budget debate in Congress. Lawmakers will weigh the administration’s push for fiscal efficiency against concerns over military readiness, potential job losses, and the evolving geopolitical landscape. If enacted, these reductions will reshape U.S. defense priorities for years to come, shifting focus away from global military engagement toward domestic security and missile defense.

The political battle over the defense budget will be a key issue in the months ahead, with implications for defense contractors, military personnel, and the broader U.S. strategic posture. Investors and analysts should watch closely as lawmakers negotiate the final details of Trump’s national security vision.

What to Expect from the 2026 Defense Budget

The fiscal year 2026 defense budget is shaping up to be one of the most contentious in recent memory as lawmakers and military officials navigate spending cuts mandated by President Donald Trump’s administration. With an expected 8% annual reduction over the next five years, the Pentagon faces tough decisions on where to reallocate funds to align with the administration’s priorities.

Key Budget Considerations

Total defense spending reached $850 billion in FY 2024, and the FY 2025 budget remains unresolved, despite the fiscal year starting in October 2024. The administration has ordered the Pentagon to find offsets—identifying programs to cut in order to shift at least $50 billion to other initiatives in FY 2026. These funds will likely be reallocated to border security, missile defense, and Indo-Pacific strategy while reducing expenditures on bureaucratic programs, climate initiatives, and DEI (Diversity, Equity, and Inclusion) initiatives.

Potential Spending Reductions

The Washington Post previously reported that an 8% annual cut could mean a $300 billion reduction in defense spending through FY 2030. However, Congress has historically approved annual increases in military funding at or above the inflation rate. That means the actual impact of these cuts will depend on how lawmakers approach the final budget negotiations.

Key Dates to Watch

- March 2025 – Deadline for lawmakers to finalize a short-term or long-term budget extension for FY 2025, or risk a partial government shutdown.

- Mid-2025 – Congressional defense budget hearings will shape the final allocations for FY 2026.

- October 1, 2025 – The start of FY 2026, by which time a finalized budget must be in place.

- Late 2025 – Final defense spending bill expected to be passed, pending negotiations in both chambers of Congress.

With the budget process already in motion, expect months of debate over the scope of military reductions, the impact on U.S. readiness, and how best to allocate funds toward strategic priorities. Investors and defense industry stakeholders will be watching closely as lawmakers determine the future of U.S. defense spending.

Major Defense Contractors and Their Exposure to Trump’s Budget Plans

Lockheed Martin (LMT)

Lockheed Martin is the largest U.S. defense contractor, with key programs including the F-35 fighter jet, missile defense systems (THAAD, Aegis), and space programs. The F-35 is a major component of U.S. air superiority, but it has been criticized for cost overruns and inefficiencies, notably by Elon Musk, who called it the "worst military value for money in history." Despite this, missile defense programs could see increased funding under Trump’s priorities.

Lockheed Martin CEO Jim Taiclet addressed concerns about potential U.S. defense budget cuts at the Citigroup Industrial Conference, emphasizing that while the F-35 program faces scrutiny, the company’s European exposure provides significant growth opportunities. He highlighted Lockheed’s strong footprint in Europe, with the F-35 dominating fighter competitions over the last decade, as well as expanding sales in HIMARS, satellites, helicopters, and fire control systems. Taiclet stressed the importance of interoperability among NATO allies, with Lockheed’s defense platforms integrating seamlessly across multiple countries. He also outlined plans for expanding co-production in Poland, Germany, the UK, and Italy, a move that would enhance supply chain resilience, create U.S. jobs, and support European industrial participation requirements. Additionally, regionalized maintenance and production capabilities in Asia, Europe, and the Middle East could mitigate risks from disrupted global logistics, ensuring operational readiness without reliance on transatlantic shipments. Ultimately, Taiclet reaffirmed Lockheed’s commitment to strengthening defense partnerships in Europe, where demand remains robust amid growing security concerns over Russia and China..

Northrop Grumman (NOC)

Northrop Grumman is a major player in stealth bombers (B-21 Raider), missile defense, and space programs. Given Trump’s focus on missile defense and Indo-Pacific strategy, NOC could benefit significantly. It also provides reconnaissance and surveillance technologies, which align with border security priorities.

Northrop Grumman (NOC) CEO Kathy Warden emphasized at the Citigroup Industrial Conference that increasing European defense budgets could help offset any slowdown in U.S. military spending. European nations are shifting away from reliance on U.S. asset-sharing and are instead purchasing advanced defense systems directly, leading to rising demand for Northrop’s Triton unmanned aircraft for Arctic surveillance, integrated air and missile defense systems, and tactical missiles. As European governments commit to spending beyond 2% of GDP on defense, U.S. contractors are well-positioned to fill capability gaps that local manufacturers cannot meet quickly. This trend aligns with the Trump administration’s push for allies to take on more responsibility for their defense, ensuring continued demand for U.S. military assets despite domestic budget uncertainties.

Raytheon Technologies (RTX)

Raytheon specializes in missile systems (Patriot, AMRAAM, Javelin), radar, and military avionics. It is a co-developer of Israel’s Iron Dome, which Trump has proposed adapting for U.S. missile defense. While missile defense funding is expected to remain strong, Raytheon’s reliance on broader military funding means it could see some pressure from budget reallocation efforts.

Raytheon Technologies (RTX) executives at the Barclays Industrial Conference expressed confidence that despite uncertainty surrounding potential U.S. defense budget cuts, bipartisan support for a strong military and industrial base remains intact. The company sees significant demand for replenishment of munitions and defense systems due to ongoing global conflicts and U.S. military aid to allies. Internationally, increased defense spending among NATO partners, now surpassing the 2% GDP target, is driving demand for integrated air and missile defense systems such as Patriot, NASAMS, Coyote counter-UAS, and naval deterrence systems like Tomahawk and SPY-6. Additionally, Raytheon views the Iron Dome initiative as a major opportunity, aligning well with its core competencies in missile defense. The company is actively working with government agencies on requirements while also exploring how existing technologies can be quickly integrated for a near-term solution. With strong international demand and its well-positioned product portfolio, RTX remains optimistic about maintaining a book-to-bill ratio above 1x despite domestic budget concerns.

General Dynamics (GD)

General Dynamics builds submarines, armored vehicles (Abrams tank), and Gulfstream defense aircraft. It also provides border security infrastructure through its subsidiary CSRA. Given Trump’s border security priorities, GD could see funding increases in surveillance and security technologies, while its tank and shipbuilding programs remain stable.

GD has extensive exposure to U.S. government spending, with a significant portion of its revenue coming from defense contracts. Its Marine Systems segment is the largest recipient, responsible for building and maintaining nuclear-powered submarines, including Columbia-class ballistic missile submarines and Virginia-class attack submarines. The Combat Systems division produces Abrams tanks, Stryker armored vehicles, and other ground warfare platforms for the U.S. Army and Marine Corps. The Aerospace segment, through Gulfstream, benefits from government contracts for military and executive transport aircraft. Additionally, the Information Technology division provides cybersecurity, cloud computing, and secure communications services to the Department of Defense and intelligence agencies. While budget shifts could impact certain modernization programs, strong commitments to naval expansion and cybersecurity are expected to sustain government spending for the company.

Boeing Defense, Space & Security (BA)

Boeing supplies fighter jets (F/A-18, F-15), military satellites, and missile defense systems. Its role in missile defense (Ground-based Midcourse Defense system) aligns with Trump’s priorities, but its traditional aircraft production may face budget scrutiny.

President Donald Trump expressed frustration over Boeing's delays in delivering the next-generation Air Force One, stating that there is "no excuse" for the prolonged timeline, which now extends until at least 2029. Citing issues with global supply chains and changing project requirements, Boeing has struggled to meet the fixed-price contract awarded years ago. Trump suggested that the administration may explore alternatives, including purchasing a used aircraft or acquiring one from another country, though he ruled out considering Airbus. With Boeing already under scrutiny, continued delays could put the company at risk of facing budget cuts or losing future government contracts.

Other Notables:

BAE Systems (BAESY)

BAE Systems, a UK-based company with U.S. operations, supplies military vehicles, electronic warfare systems, and naval weapons. Its core military focus makes it less vulnerable to Trump’s spending cuts, but foreign defense firms may face challenges under revised procurement policies favoring domestic contractors.

L3Harris Technologies (LHX)

L3Harris focuses on communications, electronic warfare, and ISR (Intelligence, Surveillance, and Reconnaissance) solutions. These areas align with border security and military intelligence priorities, suggesting stable or increased funding.

Huntington Ingalls Industries (HII)

HII is the primary builder of U.S. Navy aircraft carriers and nuclear submarines. Trump’s push for domestic military production supports its shipbuilding activities, though broader budget reductions could lead to selective program cuts.

Legacy defense contractors like HII, which has significant exposure to government spending, has *downplayed concerns over DOGE-led budget cuts. Huntington CEO Christopher Kastner stated at an industry conference that efforts to streamline Pentagon oversight could ultimately benefit the company. He also highlighted that the Trump administration’s focus on countering China’s influence in the Pacific could serve as a tailwind for Huntington, the largest U.S. shipbuilder.

Leidos (LDOS)

Leidos provides defense IT, cybersecurity, and intelligence support, making it a key player in border security and surveillance. It could benefit from cybersecurity investment, but IT services linked to DEI programs may face funding risks.

SAIC (SAIC)

SAIC specializes in defense contracting, IT, and engineering services. It aligns with cost-efficient military operations, positioning it favorably in Trump’s budget realignment.

Palantir Technologies (PLTR)

Palantir provides AI-driven defense analytics and cybersecurity services. The company’s reliance on Pentagon contracts makes it vulnerable to budget reallocation, and its stock recently fell after news of potential defense cuts. However, as military IT and intelligence operations remain a priority, Palantir could still secure funding in key areas.

Palantir stock dropped 10% on Wednesday following concerns about potential defense budget cuts, but Wedbush analyst Dan Ives sees the reaction as overblown, arguing that reduced spending on traditional defense technologies could increase Pentagon investments in AI-driven solutions. Ives, who rates Palantir at Buy with a $120 price target, believes the company stands to gain IT budget dollars despite broader reductions. Investors face uncertainty in the sector, and clarity on future spending may take months, requiring patience and strategic positioning.

Textron (TXT)

Textron manufactures military helicopters and tactical vehicles. If Trump pushes for domestic production over foreign suppliers, Textron could see increased orders for its combat vehicles and aircraft.

General Electric (GE) Aerospace

GE Aerospace supplies jet engines and military aviation components. Its fate will depend on whether Trump prioritizes domestic aviation manufacturing over cuts to expensive aircraft programs.

Conclusion

Defense contractors with strong ties to missile defense, border security, and cybersecurity stand to gain under Trump’s priorities. Companies heavily involved in DEI, climate initiatives, or bureaucratic defense spending could see cuts. The final budget will determine which programs remain safe and which face pressure, making these defense names critical to watch in the months ahead.