Defense stocks are on the rise as global military spending hit $2.7 trillion in 2024 – a 9.4% jump from last year. More than 100 countries boosted their defense budgets, catching the attention of investors worldwide.
The United States leads the pack with $824.3 billion in military spending. European nations have completely changed their defense priorities. Poland’s budget jumped 31%, Germany’s increased by 28%, and Romania saw a massive 43% rise. Defense contractors are reaping the benefits. Companies like BAE Systems and Rheinmetall have seen their stock prices double as orders keep flowing in. The situation between India and Pakistan adds another layer of complexity. Pakistan’s deployment of Chinese-made J-10C fighter jets has made the best defense stocks even more appealing to investors who want stability in 2025.
Military stocks have responded strongly to global events, particularly after the European Union’s announcement of an $840 billion defense capability plan. This piece will get into whether defense stocks are a chance for investment right now and help you identify which ones might deliver strong returns in our increasingly unstable world.
How Global Instability Is Reshaping Defense Markets
Image Source: U.S. Global ETFs
[Global military spending](https://fintechzoom.com/markets/geopolitical-tensions-fuel-market-volatility-strategies-from-fintechzoom-com-for-investors/) reached an **unprecedented $2.7 trillion in 2024**. The steepest year-over-year rise of 9.4% since the Cold War has emerged. This dramatic surge shows a world where conflict zones and tensions keep escalating.“Partly, it probably had something to do with the election, and investors anticipating the incoming Trump administration might cut defense spending (for example, by cutting military support for Ukraine).” — Rich Smith, Financial analyst and defense industry writer for Nasdaq
The ongoing war in Ukraine has transformed European security priorities. Russia boosted its military expenditure by 38% to $149 billion in 2024. European nations responded by increasing their defense budgets by 17% to $693 billion, which surpassed Cold War levels. All but one of these European countries raised their military spending last year, with Malta being the exception.
The Middle East witnessed defense expenditures climb by 15% to $243 billion. Israel’s military spending jumped by 65% in 2024—reaching its highest level since the 1967 Six-Day War. This surge came as Israel conducted operations in Gaza and against Hezbollah.
The escalating India-Pakistan conflict has become a key driver of defense stocks. Pakistan recently deployed Chinese-made J-10C fighter jets against Indian aircraft. China has emerged as Pakistan’s key defense partner, supplying more than 60% of its arms exports to Pakistan between 2020 and 2024.
The global defense market structure continues to evolve. The European Union launched its European Defense Industrial Strategy (EDIS) in early 2024 to boost European defense capabilities and reduce US dependence. The United States currently provides 63% of the EU’s defense capabilities.
Defense contractors have seen their backlogs grow substantially. The top 11 defense companies reported 7% higher revenues in 2023. Leading contractors like Lockheed Martin, Northrop Grumman, and BAE Systems saw their order backlogs rise by 11% to $747 billion.
The defense markets continue to expand rapidly, and more than 100 countries increased their military spending in 2024. This growth shows no signs of slowing down.
Are Defense Stocks a Safe Haven Investment in 2025?
More investors look at defense stocks as safe investment options for 2025 amid economic uncertainty. These stocks show amazing stability during market downturns because their revenue comes from government backing. Most other sectors can’t match this stability.
The “cost-plus” contracting model makes these stocks reliable investments. Defense contractors get their money back plus guaranteed profit margins. This setup creates steady cash flows whatever the economic conditions might be. Military stocks look even more appealing now with recession fears looming.
The U.S. economy shrank by 0.3% in the first quarter of 2025, its first drop since early 2022. Yet defense spending stays strong and proves itself as a recession-proof and inflation-proof investment choice.
Defense contractor stocks remain strong because government’s defense priorities rarely change with economic ups and downs. Funding for advanced platforms like stealth bombers, fighter jets, and drone swarms stays steady even as administrations change. The federal government’s consistency helps investors manage cash and project growth better.
Modern defense goes way beyond traditional weapons. On top of that, it includes cutting-edge artificial intelligence, hypersonics, satellite technology, and next-generation avionics. Many of these advances become “dual-use technologies” that work for both military and civilian purposes. This versatility makes these investments even more attractive.
Investors who want to buy the best defense stocks in 2025 should look at pure-play companies. Northrop Grumman, Lockheed Martin, and Huntington Ingalls Industries have grown by more than 18% this year while the S&P 500 fell 16%. Companies with diverse portfolios in weapons, cybersecurity, AI-driven warfare, and space defense prove more resilient than single-product focused businesses.
Defense stocks today aren’t cheap anymore, but they keep gaining as military hardware orders grow. Global defense spending might reach 3.5-4% of GDP, similar to Cold War levels. This could unlock hundreds of billions in extra spending, which suggests defense stocks to buy might still have room to grow significantly.
Best Defense Stocks and ETFs to Buy Today
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“Raytheon (RTX) is among the top contenders for breakout growth in 2025.” — LevelFields Research Team, Financial analysis team at LevelFields AI
Want to invest in defense stocks in today’s market? The year 2025 brings exciting investment opportunities from major defense contractors.
Lockheed Martin leads the pack as the world’s largest defense company and the U.S. government’s top contractor. The company’s F-35 Joint Strike Fighter program and its legendary Skunk Works research facility have made it a powerhouse in advanced fighter planes and electronics.
Northrop Grumman specializes in stealth bombers and nuclear triad systems. The company’s portfolio matches the Pentagon’s priorities perfectly. This makes it a great pick for investors who want steady growth.
RTX (formerly Raytheon Technologies) plays a vital role in many military platforms without directly manufacturing warships or fighters. The Pentagon has used up much of its weapon stockpiles, which means RTX should see higher demand for missiles and other products.
Some investors prefer to spread their risk instead of picking individual stocks. These defense-focused ETFs might be worth considering:
- Invesco Aerospace & Defense ETF (PPA) with a 0.53% expense ratio
- SPDR S&P Aerospace & Defense ETF (XAR) with a 0.35% expense ratio, beating its competitors
- iShares U.S. Aerospace & Defense ETF (ITA) with a 0.42% expense ratio
XAR stands out with the highest projected upside potential at 20.8% based on analyst consensus. ITA offers a better dividend yield at 0.76% compared to XAR’s 0.65%.
Smaller defense companies also show promise. Astronics (ATRO), Ducommun (DCO), and Tat Technologies (TATT) have earned “A” ratings from proprietary ranking systems. These companies could deliver double-digit returns.
The future looks bright for military stocks. President Trump’s proposed $1 trillion defense budget for fiscal 2026 represents a 12% increase from this year.
Conclusion
The Long-Term Outlook for Defense Investments
Defense stocks are a compelling investment choice for 2025. Military budgets have seen an unprecedented rise in more than 100 countries. This surge has created ideal conditions for companies like Lockheed Martin, Northrop Grumman, and RTX to grow.
The ongoing Ukraine war, Middle East tensions, and India-Pakistan’s rivalry keep pushing defense spending higher. These hotspots, combined with warfare technology breakthroughs, set a strong base for the defense sector’s growth.
These stocks bring unique stability when the economy is uncertain. Their cost-plus contracts and government’s backing protect them from market swings that hit other sectors hard. Investors looking to shield themselves from recession or inflation might find defense stocks appealing.
For those who prefer spread-out investments over single stocks, there’s the SPDR S&P Aerospace & Defense ETF (XAR). It shows a promising 20.8% upside potential. The industry also gets strong support from President Trump’s proposed $1 trillion defense budget.
Defense stocks may not be bargains anymore, but their growth seems set to continue. Global military spending could reach Cold War levels of 3.5-4% of GDP soon. Investors should think over adding defense stocks based on their financial goals and risk comfort level in today’s unstable world.
FAQs
Some top defense stocks to consider include Lockheed Martin, Northrop Grumman, and RTX (formerly Raytheon Technologies). These companies are well-positioned in the current geopolitical climate and have strong government contracts.
Yes, defense stocks can be a stable investment during economic downturns. They often have government-backed revenue streams and cost-plus contracts, which provide predictable cash flows regardless of broader economic conditions.
Global instability has led to a significant increase in defense spending worldwide. In 2024, global military spending reached $2.7 trillion, a 9.4% year-over-year increase, with over 100 countries raising their military budgets.
Popular defense-focused ETFs include the Invesco Aerospace & Defense ETF (PPA), SPDR S&P Aerospace & Defense ETF (XAR), and iShares U.S. Aerospace & Defense ETF (ITA). These offer diversified exposure to the defense sector.
Defense stocks tend to perform well during times of conflict or increased global tensions. For example, companies like BAE Systems and Rheinmetall have seen their stock prices double amid rising orders due to recent geopolitical events.
