3 Stocks to Watch as Geopolitics Drives Defense Spending Boom

Renewed great-power competition in the Pacific and protracted wars in Europe and the Middle East have pushed defence budgets and investor interest sharply higher, creating a powerful tailwind for aerospace and defence contractors. Governments are not only replenishing ammunition and missile stocks but also accelerating investment in missiles, air defence, space and autonomous systems.

This policy backdrop helps explain why many large U.S. defence names have outperformed the broader market this year. Defence programs are long-term in nature, often funded through multi-year appropriations, and benefit from higher unit volumes and renewed focus on domestic supply chains. Recent regional moves, such as Taiwan’s large supplemental defence proposal, underline how specific flashpoints have turned into durable procurement programs.

Earnings and order books have generally reinforced that narrative. Several contractors reported expanded backlogs and upgraded guidance in 2025 after stronger-than-expected missile and space demand, while others faced program-specific boosts that tempered returns. This showed that the sector is a mix of steady government cashflows and project execution risk. Investors have therefore tended to reward firms with clean execution, growing missile/space franchises and exposure to allied rearmament.

Three major stocks from the Zacks Aerospace – Defense industry that have done well in 2025 are RTX Corporation RTX, General Dynamics Corporation GD and Northrop Grumman Corporation NOC, jumped 54%, 32.3% and 23.6% year to date, respectively, as of Nov. 28. RTX, GD and NOC carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Strong demand for missile systems, air-defense platforms, space technologies and classified programs has boosted RTC’s backlog, while GD has gained from robust shipbuilding orders and steady demand for military vehicles and aerospace services. NOC has advanced on increased investment in strategic deterrence, autonomous systems and space-based defense assets. Reliable execution, rising multi-year contracts and improved supply-chain stability have helped all three outperform the broader market this year.

Bottom Line

This year, geopolitics and policy have driven tangible spending decisions, and investors have rewarded companies that convert that demand into bookable orders and reliable execution. That said, program risk and supply-chain friction remain real constraints, so the sector’s winners this year will need to prove they can sustain margin and gains into 2026.

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This article originally published on Zacks Investment Research (zacks.com).

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