A partially completed destroyer is sitting in dry dock outside a shipyard in Newport News, Virginia, with the late afternoon light shining on its hull. As they move between scaffolding, welders strike the steel with short, blue arcs from their torches. As you pass locations like this, you get a subtle feeling that something significant is changing in American defense. This change now has a price tag on Wall Street: approximately $1 trillion in 2026, with the Trump administration aiming for $1.5 trillion in 2027.
Even by Pentagon standards, the figures are astounding. If approved, a 66% increase from current levels would rank among the biggest increases in modern defense spending in a single year. Even if Congress cuts corners, investors seem to think the majority of it will pass in one way or another. The gap between the winners and the also-rans is more pronounced than it first seems, and the market has already begun selecting favorites.
Due primarily to ships, General Dynamics has become one of the more obvious beneficiaries. The company ended 2025 with a $118 billion backlog, and its marine systems division brought in $16.7 billion last year, up almost 17%. At 1.5, the book-to-bill ratio indicates that new orders are piling up more quickly than the business can process existing ones. Submarine and destroyer contracts now have a political urgency that did not exist a few years ago, as China continues to surpass the United States in shipbuilding capacity. The stock isn’t cheap, but it’s also not ridiculous at a P/E of about 21. Considering other developments in the industry, that is significant.
The other is Palantir. With a recent $10 billion Army contract spread over ten years, the company has evolved into something akin to the Defense Department’s data spine. Last quarter, revenue increased by 70% year over year. However, the price-to-sales ratio of the stock is higher than 80, which causes even optimistic analysts to reconsider. Palantir might become a multiple. Investors may view this time period similarly to how they view Cisco in 2000—a fantastic company priced like a fantasy.
The smaller, stranger bets come next. BlackSky Technologies’ management is aiming for $120 to $145 million in revenue by 2026. The company uses a constellation of satellites to photograph hotspots around the world throughout the day. Thanks to its drones and unmanned systems, Kratos Defense—once a forgotten penny stock—now has a market capitalization close to $20 billion. Earlier this year, Stifel set a price target of $134. Although the valuation already prices in a lot of optimism, the technicals appear strong and the fundamentals are getting better.
The conventional leaders, such as Lockheed Martin, Northrop Grumman, and RTX, occupy a more complex position. In January, they were shaken by Trump’s criticism of executive compensation and buybacks in Truth Social posts, which briefly caused shares to decline before the budget proposal caused them to rise again. With Lockheed’s $186 billion backlog and Northrop’s $95.6 billion, they have clear staying power, which raises more questions about whether Washington will allow them to continue rewarding shareholders in the same manner than it does about long-term revenue. With $80 billion in yearly sales and a yield of 1.4%, RTX continues to appear to be the most reliable of the group.
The pure commercial defense-adjacent names—the cybersecurity firms hoping for spillover, the AI companies pitching dual-use platforms without actual Pentagon traction—don’t gain anything, at least not immediately. Large sums of money typically go through well-known channels. It’s difficult to ignore the fact that the same few contractors, including one who pledges to change things, consistently appear on every administration’s wish list. The companies that built the previous military are largely responsible for building the “dream military,” as Trump put it.
