Why General Dynamics Stock Soared Today

"$1.5 trillion" -- it isn't just for SpaceX anymore.

Last month, SpaceX floated plans to run a $1.5 trillion initial public offering of stock. Yesterday, President Trump announced on Truth Social: "For the Good of our Country, especially in these very troubled and dangerous times, our Military Budget for the year 2027 should not be $1 Trillion Dollars, rather $1.5 Trillion Dollars ... This will allow us to build the 'Dream Military' that we have long been entitled to, and, more importantly, that will keep us SAFE and SECURE."

Defense stocks in general are surging, and General Dynamics (NYSE: GD) stock in particular is up 6% as of 9:50 a.m. ET.

Image source: Getty Images.

Details, please

The President didn't provide a whole lot of detail on where he wants to spend $1.5 trillion, or which companies will benefit from government largesse. One thing he did make crystal clear:

Once General Dynamics and its peers get the government money, they must spend it on boosting weapons production -- not just hand it over to executives in the form of fatter paychecks, nor funnel it to shareholders via dividends and stock buybacks.

In a separate but clearly related post, the President blasted defense companies for "exorbitant and unjustifiable" executive compensation, insisting that defense CEOs shouldn't earn more than $5 million per year. He also promised to "not permit Dividends or Stock Buybacks for Defense Companies" until they get better at producing and maintaining military equipment.

Is General Dynamics stock a buy?

What does this mean for investors? It's a bit of a double-edged sword. Assuming Congress agrees, GD can expect a big boost in annual revenue. It will need to make significant capital investments, however, which will cut into its profit margin on that revenue.

Ultimately, earnings may end up flat.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.