Why are defense stocks going up in 2026?

Defense stocks are rallying due to a convergence of geopolitical catalysts: escalating US-Iran tensions, Japan's decision to deploy missiles near Taiwan prompting Chinese retaliation, European rearmament driven by the Ukraine war, and bipartisan U.S. political support for increased military spending. These factors are driving accelerating government contract awards across the sector.

Which defense stock has the best valuation right now?

General Dynamics (GD) and Northrop Grumman (NOC) offer the most attractive valuations among the major defense contractors, with P/E ratios of 22.72x and 25.02x respectively. General Dynamics also provides diversification through its Gulfstream business jet division, while Northrop benefits from next-generation programs like the B-21 Raider and Sentinel ICBM.

How much have defense stocks risen from their 52-week lows?

The six major U.S. defense contractors have rallied 47-81% from their 52-week lows. Boeing and L3Harris led with approximately 81% gains each, followed by RTX at 77%, Lockheed Martin and Northrop Grumman at around 62%, and General Dynamics at 47%.

What are the biggest risks for defense stock investors?

Key risks include potential budget sequestration or government shutdowns that could delay contract awards, supply chain constraints limiting production capacity, and diplomatic breakthroughs that could reduce the geopolitical premium in defense valuations. An Iran nuclear deal or Ukraine ceasefire would be negative catalysts for the sector.

When do defense companies report earnings next?

All six major defense contractors report Q1 2026 earnings in a concentrated window from April 21-23, 2026. Lockheed Martin, RTX, and Northrop Grumman report on April 21, General Dynamics and Boeing on April 22, and L3Harris Technologies on April 23.

Sector Watch: Why Defense Stocks Are Surging...

Defense stocks are having a remarkable run. Lockheed Martin, Northrop Grumman, RTX Corporation, General Dynamics, Boeing, and L3Harris Technologies are all trading near their 52-week highs, with some names up more than 80% from their lows over the past year. The rally is not happening in a vacuum — it is being driven by a convergence of geopolitical flashpoints that are forcing governments worldwide to accelerate military spending.

The catalysts are stacking up. President Trump used his record-long 2026 State of the Union address to issue direct warnings to Iran and signal continued defense spending priorities. Japan announced plans to deploy missiles on islands near Taiwan by 2031, prompting immediate Chinese retaliation through export restrictions on 40 Japanese entities with military ties. Europe, marking four years since Russia's invasion of Ukraine, is debating the creation of a unified EU military force as NATO members scramble to meet the 2% GDP spending target. For investors, the question is whether these tailwinds are already priced in — or whether the defense sector still has room to run.

With the six largest U.S. defense contractors now commanding a combined market capitalization exceeding $867 billion, understanding the fundamentals behind the rally is essential for anyone considering exposure to the sector.

The Geopolitical Catalysts Driving Defense Spending

The current defense stock rally rests on three distinct geopolitical pillars, each reinforcing the others.

US-Iran tensions have escalated sharply. Trump's State of the Union address included pointed warnings to Tehran, and CNBC reports that a new round of US-Iran talks is imminent amid nuclear concerns and threats of military action. The CIA has released Persian-language videos urging Iranian citizens to make contact using burner phones and Tor — an unusual public intelligence outreach that signals the seriousness of the standoff. Any military confrontation in the Persian Gulf would directly benefit missile systems manufacturers like Lockheed Martin and Raytheon (now RTX), whose Patriot and THAAD systems are deployed across the region.

The Indo-Pacific theater is heating up simultaneously. Japan's decision to deploy missiles on islands near Taiwan by 2031 represents a historic shift in Tokyo's post-war defense posture. China responded within 24 hours by restricting exports to 40 Japanese entities with military connections. This tit-for-tat escalation benefits companies like Northrop Grumman, whose B-21 Raider stealth bomber program is central to the Pentagon's Pacific strategy, and L3Harris, which supplies communications and electronic warfare systems.

European rearmament may be the largest long-term catalyst. Four years into the Ukraine war, European nations are collectively spending hundreds of billions to modernize their forces. The debate over an EU army has moved from theoretical to operational planning. NATO's 2% GDP spending target — once aspirational — is now the floor, not the ceiling. Germany alone has committed to a €100 billion special defense fund, and Poland is targeting 4% of GDP on defense. These contracts flow disproportionately to U.S. defense primes, who dominate the global arms export market.

How the Big Six Defense Stocks Compare

The performance across the defense sector has been broad-based but not uniform. Every major contractor is trading near its 52-week high, but the valuations and growth profiles differ meaningfully.

Lockheed Martin (LMT) leads the pure-play defense names at $664.43, just pennies from its 52-week high of $669.75. The stock has surged 62% from its year low of $410.11. With a P/E ratio of 30.95 and a market cap of $153.7 billion, it trades at a premium to its historical average, reflecting the F-35 program's multi-decade revenue visibility.

RTX Corporation (RTX) is the largest by market capitalization at $266.4 billion, trading at $198.46 with a P/E of 40.01. The stock has rallied 77% from its year low of $112.27. RTX's premium valuation reflects its dual exposure to defense (Raytheon missiles, Pratt & Whitney military engines) and the commercial aerospace recovery.

Northrop Grumman (NOC) at $727.73 carries the most attractive valuation among the primes at a P/E of 25.02, with a market cap of $103.3 billion. The stock is up 62% from its $449.21 year low. The B-21 Raider program and Sentinel ICBM replacement give Northrop unmatched visibility into next-generation strategic programs.

General Dynamics (GD) at $351.18 offers the second-lowest P/E at 22.72 with a $95 billion market cap. Its Gulfstream business jet division provides diversification that pure defense plays lack, while its combat vehicle and submarine programs benefit from the same spending tailwinds.

Boeing (BA) remains the outlier at a P/E of 93.73 and a price of $233.39, reflecting years of commercial aviation setbacks. But its defense and space division — responsible for the F-15EX, KC-46 tanker, and AH-64 Apache — generated meaningful revenue that investors sometimes overlook.

L3Harris Technologies (LHX) rounds out the group at $354.27 with a P/E of 41.58 and a market cap of $66.3 billion, up 81% from its year low. The company specializes in communications, electronic warfare, and intelligence systems — the exact capabilities in highest demand as militaries modernize.

Defense Stocks: Price vs 52-Week High

Revenue Growth and Earnings Momentum

The fundamental story backing the rally is strong and accelerating. The big three pure-play defense contractors all posted meaningful revenue growth through fiscal year 2025, with the strongest quarters coming at the end of the year as government contract spending ramped up.

Lockheed Martin generated $75.1 billion in full-year 2025 revenue, with Q4 reaching $20.3 billion — the company's strongest quarter. Diluted EPS for the full year came in at $21.49, though the results were uneven: Q2 saw a sharp dip to $1.46 per share due to one-time charges, before recovering to $5.80 in Q4. The company's operating cash flow of $13.94 per share in Q4 and free cash flow yield of approximately 2.5% support its dividend, which yields around 0.7% at current prices.

RTX Corporation posted the most impressive top-line growth, with Q4 2025 revenue reaching $24.2 billion — up from $20.3 billion in Q1, representing 19% sequential growth over the year. Full-year revenue totaled approximately $88.6 billion. While the P/E ratio looks elevated at 40, RTX's diversified revenue streams across defense electronics, missiles, engines, and commercial aerospace justify a premium multiple.

Northrop Grumman's growth trajectory was equally compelling. Revenue climbed from $9.5 billion in Q1 to $11.7 billion in Q4 — a 24% increase over the fiscal year. Q4 EPS of $9.99 was the year's strongest quarter. Full-year revenue of approximately $42 billion positions Northrop as the primary beneficiary of next-generation strategic defense programs.

Quarterly Revenue Growth — FY2025 ($B)

Valuation Framework: What Investors Are Paying for Defense Exposure

After a 60-80% rally across the sector, the natural question is whether defense stocks have gotten ahead of themselves. The answer depends on which valuation lens you use — and which growth assumptions you believe.

On a pure P/E basis, the sector ranges from General Dynamics at 22.72x to Boeing at 93.73x. Excluding Boeing's distorted earnings, the median defense P/E sits around 30-35x — elevated relative to the S&P 500's roughly 21x forward multiple, but defensible given the multi-year spending visibility these companies enjoy. Government defense contracts typically run 5-10 years with built-in escalation clauses, providing earnings predictability that few other sectors can match.

Lockheed Martin's key metrics tell a deeper story. The company's return on equity of 20% in Q4 2025 and operating cash flow of $13.94 per share demonstrate strong capital efficiency despite the elevated stock price. Debt-to-equity of 3.23x is high but typical for defense primes that use leverage to fund share buybacks and dividends while investing in next-generation programs. The interest coverage ratio of 8.0x provides comfortable debt service headroom.

The enterprise value-to-EBITDA multiples provide perhaps the clearest comparison: Lockheed trades at 56.6x trailing EBITDA in Q4 (inflated by the Q2 charge), Northrop at approximately 45x, and General Dynamics at roughly 25x. For investors seeking the most reasonable entry point, GD and NOC offer better value relative to their growth rates. RTX commands the highest absolute valuation but offers the broadest revenue diversification.

One risk factor worth monitoring: the 10-year Treasury yield has dropped to 4.03%, down from 4.09% just a week earlier. Falling rates are generally positive for defense stocks — they reduce the discount rate applied to future cash flows from long-duration government contracts, and they signal potential economic weakness that historically correlates with increased defense spending as a counter-cyclical policy tool.

Risks and What to Watch Next

Despite the favorable setup, defense investors should be aware of several risks that could disrupt the rally.

Budget sequestration or continuing resolutions remain the sector's perennial threat. While bipartisan support for defense spending is strong, any extended government shutdown or spending caps could delay contract awards and create near-term uncertainty. The current political environment — with Trump's State of the Union emphasizing military strength — reduces this risk but does not eliminate it.

Supply chain constraints continue to affect production timelines. Lockheed's F-35 deliveries have faced delays due to component shortages, and RTX's Pratt & Whitney division is dealing with a multi-year engine inspection program that constrains capacity. These bottlenecks limit how quickly defense primes can convert backlog into revenue.

Diplomatic breakthroughs would reduce the urgency driving spending. If US-Iran talks yield a nuclear agreement, or if the Ukraine conflict reaches a ceasefire, the geopolitical premium baked into defense valuations could deflate rapidly. The market is pricing in sustained tension — any de-escalation would be a headwind.

Key dates for investors: All six major defense contractors report Q1 2026 earnings between April 21-23, creating a concentrated window of fundamental updates. Lockheed Martin, RTX, and Northrop Grumman all report on April 21, followed by General Dynamics and Boeing on April 22, and L3Harris on April 23. These reports will reveal whether the Q4 2025 revenue acceleration is continuing into 2026.

For investors considering sector exposure, the most important metric to watch is backlog growth. Defense companies with expanding backlogs are effectively pre-selling years of future revenue. In the current environment — where governments are signing multi-year procurement agreements at an accelerating pace — backlog growth is the single best indicator of sustained momentum versus a one-time spending spike.

Conclusion

The defense sector rally is built on a foundation that goes beyond short-term sentiment. Three major geopolitical theaters — the Middle East, the Indo-Pacific, and Europe — are simultaneously driving the largest sustained increase in global military spending since the Cold War. The fundamentals back this up: Lockheed Martin, RTX, and Northrop Grumman all posted accelerating revenue through fiscal year 2025, with Q4 representing the strongest quarter for each company.

Valuations are undeniably stretched relative to the broader market, with P/E ratios in the 25-40x range for the pure-play names. But the multi-year visibility provided by government contracts, combined with the bipartisan political support for defense spending that Trump's State of the Union reaffirmed, makes a strong case that current premiums are justified. For investors seeking the most attractive risk-reward entry points, Northrop Grumman's 25x P/E with its B-21 and Sentinel program visibility, and General Dynamics' 22.7x multiple with its Gulfstream diversification, offer the best value in the group.

The concentrated April earnings season will be the next major test. If backlog growth confirms that the spending acceleration is structural rather than cyclical, the defense sector's premium valuations have room to persist — and potentially expand further.