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 levels, and if a Republican majority is achieved this midterms, then the planned spending would become the largest military appropriation since World War II.

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.

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.

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.

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.

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).

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.

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’.

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’. 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. 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.’

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. 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."

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.

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. 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.

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.

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.

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.

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. 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.