Trump’s US$1.5 trillion defence budget: dream or nightmare for traders and investors?

2026 US Midterm Elections: is Trump’s US$1.5 trillion defence agenda under threat?

The upcoming 2026 US Midterm Elections will serve as a pivotal point for US President Donald Trump’s historic US$1.5 trillion Fiscal Year 2027 (FY2027) defence budget proposal. The budget request represents a 42% increase over current defence spending levels¹, and if a Republican majority is achieved this midterms, then the planned spending would become the largest military appropriation since World War II.²

The midterm results matter because of a temporary continuing resolution that has been put in place until 11 December 2026, effectively suspending Trump’s budget request until then.³

Meanwhile, the Drone Dominance Programme, a US$1.1 billion, two-year initiative launched in December 2025 by the US Department of War, will also hinge on the outcome of the 2026 US Midterm Elections.⁴

The programme, which is led by Defence Secretary Pete Hegseth, aims to field approximately 340,000 small, weaponised, and autonomous unmanned aerial systems (UAS) to combat units by January 2028 — a scale of procurement that would fundamentally alter the cost-exchange calculus of modern warfare.⁵

The initiative signals an unprecedented era of commitment to unmanned systems. According to Pentagon budget documents, the Department of War's FY2027 request includes more than US$74 billion for drone and counter-drone technologies, tripling FY2026’s spending and representing the largest such investment ever.⁶ 

The Pentagon's defence-tech spending agenda encompasses far more than drones. The FY2027 budget request includes US$756.8 billion of investments in new industrial capabilities, cyber capabilities (over US$20 billion), and space-based systems (more than US$75 billion of investments for the US Space Force).⁷

Why defence-tech markets are watching November's election results closely

Yet this vision is already facing some level of existential risk at the ballot box. Pew Research polling released in October 2026 showed that Democratic candidates hold an eight percentage point edge on the generic congressional ballot, with 44% of all registered voters saying they would support a Democrat for the House if the elections were held today, compared to 36% for Republicans.⁸ 

Furthermore, according to the University of Sydney's US Studies Centre (USSC), Democrats are ‘expected to regain control of the House (of Representatives)’, which would allow them to ‘block the use’ of Trump’s Reconciliation 2.0 (an act that allows the ruling party to pass certain budget-related bills with a simple majority) ‘as a funding tool thereafter’.⁹

However, the USSC also found that ‘those results may only amplify the incentives for the Trump administration to persist with its current efforts to maximise its freedom of manoeuvre on defence spending’.¹⁰ Thus even post-election, the issue of proposed budgets may continue to influence partisanal strategies and tactics.

Similarly, Pew Research Centre data also reveals sharp partisan divides on defence spending priorities. A May 2026 poll found that nearly six in ten Americans think the Pentagon's record-breaking budget proposal is too costly, with 87% of Democrats and 54% of independents believing it is excessive.¹¹ This suggests that a Democratic House could face voter pressure to curtail the most aggressive elements of Trump's defence agenda.

‘The polling data shows growing discomfort among the general public with the scale of military spending,’ Jennifer Greenburg, a researcher with Brown's Costs of War project, was quoted as saying by USA Today. ‘In real time, I think what we're seeing is the public experience how more spending does not actually keep them safe.’¹²

How will defence, semiconductor, cybersecurity, and space-based stocks be affected?

As voters head to the polls in November, several defence-tech policy areas are emerging as flashpoints. Noting these inflection points could prove to be helpful for traders and investors seeking to contextualise and understand potential post-election market movements, particularly in the defence sector.

Defence stocks and the Drone Dominance Program

The Drone Dominance Program (DDP) operates through four "Gauntlet" phases, each escalating in procurement volume and lowering unit costs through competitive pressure.¹³ According to Pentagon documentation, "by fostering fierce commercial competition via a public leaderboard, the department aims to scale production from 30,000 to 150,000 units per phase, ultimately dropping the target unit cost from $5,000 to approximately $3,000."¹⁴

Gauntlet Phase I and II took place in February 2026 and August 2026 respectively. Phase III is currently open, with two further phases planned for 2027.¹⁵

As previously stated, if Democrats gain House control, budget reconciliation bills — the mechanism through which Trump is planning to fund defence increases without Democratic support — could be blocked, including that for Gauntlet III and beyond. 

Related defence stocks: Kratos Defense & Security Solutions, AeroVironment, Red Cat Holdings, AEVEX Aerospace, Unusual Machines, Palantir, Boeing

Related ETFs: Rex Drone ETF

Semiconductor stocks and the CHIPS Act sunset

The CHIPS and Science Act of 2022 represents a US$39 billion investment in domestic chip manufacturing, including chips employed in weapon systems.16 However, a critical deadline looms: fiscal year 2026 is the final year for which the Department of Commerce is to receive CHIPS Act funding for incentivising domestic semiconductor production.¹⁷ 

Additionally, a 35% investment tax credit for capital expenses associated with semiconductor production is available only to projects that begin fab construction before 31 December 2026.¹⁸

Related defence prime stocks: BAE Systems, RTX Corporation, Lockheed Martin

Related semiconductor supplier stocks: Intel Corporation, Wolfspeed, GlobalFoundries, SkyWater Technology 

Cybersecurity stocks and cyber defence AI integrations

The Department of War's FY2026 cyberspace activities budget totalled US$14.32 billion, up 7.24% from FY2025.¹⁹ 

More significantly, cyber defence seems to be evolving into AI-integrated defence. According to Axis Intelligence Research, the FY2027 request will devote US$7.76 of every US$100 of Department of War budgetary resources to AI and autonomy — otherwise known as the Defense AI Investment Intensity (DAII) combined reading. 

“The autonomy line alone rose from US$13.4 billion in the FY 2026 request to US$54.0 billion in FY 2027, a 303.0% increase. Of the $58.5 billion AI line, 78.63% sits in one item: the sovereign AI Arsenal,” the researcher added.²⁰

Related defence-linked cybersecurity stocks: CrowdStrike, Zscaler Inc (24 Hours), Palo Alto Networks, Fortinet, SentinelOne

Related cybersecurity-focused ETFs: First Trust Nasdaq Cybersecurity ETF, Amplify Cybersecurity ETF, Global X Cybersecurity ETF, iShares Cybersecurity and Tech ETF

Space-based defence and satellite stocks

The FY2027 budget also includes more than US$75 billion for the US Space Force, with significant allocations to space-based missile defence sensors and interceptors.²¹ This represents a shift from traditional air-breathing platforms toward space-based architecture.

Related space-based defence and satellite stocks: SpaceX, Lockheed Martin Corp, Northrop Grumman Corp, RTX Corp, L3Harris Technologies Inc, Anduril Industries, AST SpaceMobile

Related defence and space ETFs: iShares U.S. Aerospace & Defense ETF, Invesco Aerospace & Defense ETF, SPDR S&P Aerospace & Defense ETF, ARK Space Exploration & Innovation ETF, Procure Space ETF 

US midterms and defence spending: main takeaways for traders and investors

The 2026 US Midterm Elections represent a critical juncture for Trump's US$1.5 trillion FY2027 defence budget — a 42% spending increase that would become the largest military appropriation since World War II if Republicans secure congressional control.

The Drone Dominance Program, a US$1.1 billion initiative targeting 340,000 autonomous UAS by January 2028, faces particular vulnerability; Democratic House control could block reconciliation bills funding Gauntlet III and beyond. 

Meanwhile, the CHIPS Act's final funding year expires in 2026, with the 35% investment tax credit deadline set for 31 December 2026.

Pentagon’s planned cyber and AI spending is also surging — the FY2027 request allocates US$7.76 of every $100 to AI and autonomy, including a US$54 billion autonomy line (a 303% increase). 

US Space Force funding could exceed US$75 billion, the bulk of which is currently being angled towards space-based missile defence. While Pew Research shows Democrats lead generic ballot polling by eight points, traders and investors would be wise to monitor how Republican retention or Democratic gains could potentially reshape defence-tech sector trajectories across drones, semiconductors, cybersecurity, and space systems.

Sources and citations

1. Source: https://www.war.gov/News/Releases/Release/Article/4466038/department-of-war-releases-the-presidents-fiscal-year-2027-budget/

Citation: "The Department of War (DoW) today released President Donald J. Trump's Fiscal Year 2027 (FY27) Defense Budget, which asks for a generational investment of $1.5 trillion to unleash the American Arsenal of Freedom, marking a 42% increase over current funding levels." - U.S. Department of War, 21 April 2026

2. Source: https://www.whitehouse.gov/wp-content/uploads/2026/04/rebuilding-our-military-fact-sheet.pdf

Citation: "This amount exceeds even the Reagan buildup by approaching the historic increases just prior to World War II, a level that recognizes the current global threat environment and restores the readiness and lethality of our forces." - White House Fact Sheet, April 2026

3. Source: https://www.airandspaceforces.com/congress-cr-pentagon-december-1-5t-budget-request/

Citation: "With 30 days to go before the end of fiscal 2026, Congress passed a continuing resolution Sept. 1 to extend current spending levels through Dec. 11—putting on hold the Pentagon's request for $1.5 trillion in spending authority." - Air & Space Forces Magazine, 1 September 2026

4. Source: https://www.war.gov/News/News-Stories/Article/Article/4520698/drone-dominance-program-receives-first-order-gauntlet-ii-gets-underway/

Citation: "The Drone Dominance Program is a $1.1 billion, two-year effort to execute President Donald J. Trump's Executive Order 14307, which articulated the urgent need for the department to procure, integrate and train with low-cost, high-performing drones manufactured in the U.S." - U.S. Department of War, June 2026

5. Source: https://aviationweek.com/defense/budget-policy-operations/drone-dominance-program-seeks-340000-drones-2028

Citation: "A new, nearly $1.1 billion Pentagon plan calls for acquiring 340,000 weaponized small drones in a two-year period, continuing the U.S. military's years-old ambition to dramatically scale up drone production." - Aviation Week, 3 December 2025

6. Source: https://www.yahoo.com/news/articles/trumps-1-5-trillion-military-222500757.html

Citation: "According to Department of War budget documents released Tuesday, the proposal includes: more than $74 billion for drone and counter-drone technologies, tripling FY26 spending and marking the largest such investment ever." - The Center Square, April 2026

7. Source: https://www.war.gov/News/Releases/Release/Article/4466038/department-of-war-releases-the-presidents-fiscal-year-2027-budget/

Citation: "As the successor to the generational Reagan-era military build-up, over half ($756.8B) of the DoW's budget is allocated to investments in new capabilities. The request nearly doubles the budget for the United States Space Force, investing more than $75B to ensure American space superiority. With more than $20 billion invested in our cyberspace capabilities, we will be better positioned than ever to defend federal systems, critical infrastructure, and supply chains, all while building robust cyber operations." - U.S. Department of War, 21 April 2026

8. Source: https://www.pewresearch.org/politics/2026/10/08/with-americans-in-a-sour-mood-democratic-voters-are-more-engaged-in-midterms/

Citation: "Democrats currently hold an 8 percentage point edge in national vote preferences, with 44% of all registered voters saying they would support a Democrat for the House if the election were held today and 36% preferring a Republican." - Pew Research Center, October 2026

9. Source: https://www.ussc.edu.au/trump-congress-and-the-battle-for-the-defence-budget

Citation: "Members of the prominent Republican Study Committee members have endorsed Reconciliation 2.0 as 'the perfect vehicle' to implement 'Trump's America First agenda in 2026,' particularly before the November 2026 mid-term elections where Democrats are expected to regain control of the House, allowing them to block the use of reconciliation as a funding tool thereafter." - University of Sydney US Studies Centre, April 2026

10. Source: https://www.ussc.edu.au/trump-congress-and-the-battle-for-the-defence-budget

Citation: "Even if the November 2026 mid-term elections are widely expected to alter the balance of power between Democrats and Republicans in Congress, those results may only amplify the incentives for the Trump administration to persist with its current efforts to maximise its freedom of manoeuvre on defence spending." - University of Sydney US Studies Centre, April 2026

11. Source: https://www.usatoday.com/story/news/politics/2026/05/14/pentagon-trillion-dollar-budget-americans-poll/90064848007/

Citation: "Nearly 6 in 10 Americans think the Pentagon's record-breaking budget proposal is too costly, according to a poll conducted in early May... Although Democrats accounted for the largest fraction of voters who thought the Pentagon budget was too high – 87% – a majority of independents also felt the same way – 54%." - USA Today, 14 May 2026

12. Source: https://www.usatoday.com/story/news/politics/2026/05/14/pentagon-trillion-dollar-budget-americans-poll/90064848007/

Citation: ""The polling data shows growing discomfort among the general public with the scale of military spending," Jennifer Greenburg, a researcher with Brown's Costs of War project told USA TODAY. "In real time, I think what we're seeing is the public experience how more spending does not actually keep them safe."" - USA Today, 14 May 2026

13. Source: https://www.war.gov/News/Releases/Release/Article/4396462/war-department-announces-vendors-invited-to-compete-in-phase-i-of-the-drone-dom/

Citation: "Drone Dominance operationalizes the Secretary of War's acquisition reform priorities by sending a clear demand signal to industry—$1.1 billion over four phases, placing warfighters at the center of evaluation, and driving competitive, iterative cycles measured in months, not years. Across the program's four phases, unit prices decrease, production volumes increase, and operational capability rises." - U.S. Department of War, 3 February 2026

14. Source: https://www.war.gov/News/News-Stories/Article/Article/4520698/drone-dominance-program-receives-first-order-gauntlet-ii-gets-underway/

Citation: "By fostering fierce commercial competition via a public leaderboard, the department aims to scale production from 30,000 to 150,000 units per phase, ultimately dropping the target unit cost from $5,000 to approximately $3,000." - U.S. Department of War, June 2026

15. Source: https://drone-warfare.com/research/drone-dominance-program/

Citation: "The first Gauntlet, in February 2026, produced orders for 24,320 first-person-view drones from eleven companies. On the program's tracker, last updated on 10 September, 12,720 of the 22,320 base-order drones had been accepted by the government, and the competition's winner had none recorded as accepted. The second Gauntlet, flown in August against live jamming, set projected allocations of 60,000 drones at $4,500 and $3,500 per airframe plus $3,250 per warhead, making the price of an armed drone visible for the first time. A third competition, for a reusable bomber drone that drops mortar-sized munitions at up to 30 km, opens in October 2026, and two further phases are planned for 2027." - Drone Warfare, September 2026

16. Source: https://www.congress.gov/crs-product/R49031

Citation: "Congress has passed legislation to bolster the semiconductor industry in the United States. Legislation included the Creating Helpful Incentives to Produce Semiconductors and Science Act of 2022 (CHIPS Act; P.L. 117-167, Division A), which appropriated $39 billion for an incentives program to support companies to build or expand commercial semiconductor fabrication facilities (fabs) that manufacture chips or inputs for chip production. The CHIPS Act aimed to increase chip manufacturing capacity in the United States, address supply chain vulnerabilities, and improve the competitiveness of the semiconductor and technology industries. In addition, some Members of Congress sought to improve national security by ensuring the domestic production of chips employed in weapons systems." - Congressional Research Service, July 2026

17. Source: https://www.congress.gov/crs-product/R49031

Citation: "FY2026 is the final year for which DOC is to receive CHIPS Act funding for incentivizing the domestic production of semiconductors." - Congressional Research Service, July 2026

18. Source: https://legis1.com/news/chips-act-funding-semiconductor-1-funds-40-fab

Citation: "A 35 percent investment tax credit for capital expenses related to semiconductor production and manufacturing equipment is available only to projects that begin fab construction before December 31, 2026." - Legis1, August 2026

19. Source: https://axis-intelligence.com/defense-cybersecurity-statistics/

Citation: "The Department of Defense requested $14.32 billion for cyberspace activities in FY2026, a $967.6 million increase over the FY2025 enacted level and the largest cyber budget in the Department's history. DoD's FY2026 cyberspace activities budget is $14,323.1 million, up 7.24% from $13,355.5 million enacted in FY2025." - Axis Intelligence Research, September 2026

20. Source: https://axis-intelligence.com/military-ai-statistics/

Citation: "Axis Intelligence Research finds that the FY 2027 request devotes $7.76 of every $100 of Department of War budgetary resources to artificial intelligence and autonomy — the Defense AI Investment Intensity (DAII™) combined reading. The autonomy line alone rose from $13.4 billion in the FY 2026 request to $54.0 billion in FY 2027, a 303.0% increase. Of the $58.5 billion AI line, 78.63% sits in one item: the sovereign AI Arsenal." - Axis Intelligence Research, August 2026

21. Source: https://www.whitehouse.gov/wp-content/uploads/2026/04/rebuilding-our-military-fact-sheet.pdf

Citation: "more than $75 billion for the Space Force." - White House Fact Sheet, April 2026