The macro environment for defence stocks in 2026 is arguably the strongest it’s been in a generation.

Conflicts in Ukraine and the Middle East have depleted Western military stockpiles, forcing urgent replenishment programmes that are directly benefitting the largest contractors.

Simultaneously, NATO members are committing record shares of GDP to defence budgets, with several European nations pushing well beyond the 2% target that was once considered aspirational.

European rearmament is perhaps the standout story. Germany has reversed decades of spending restraint, Poland is dramatically scaling up procurement, and the broader continent is now funding programmes in ammunition, air defence, armoured vehicles and naval assets that will run well into the 2030s. That structural shift has propelled European defence names to multi-year highs.

On the US side, the recently rechristened Department of War continues to see its budget rise, with global defence spending projected to approach three trillion dollars by the end of the decade.

For investors, the key point is that this does not seem to be like previous defence spending spikes (a cyclical blip driven by a single conflict). It’s a broad, multi-government-mandated spending commitment with long lead times and visible revenue pipelines. That makes defence one of the more forecastable sectors in the market right now.

Top defence stocks to watch

These stocks represent the 10 largest defence-oriented businesses by market capitalisation. Market cap matters here because it reflects the scale needed to win and execute the kind of multi-billion-dollar, decade-long contracts that define this industry.

Smaller contractors do offer greater growth potential, but the names below are the ones governments turn to when the stakes are high.

RTX (RTX)

RTX (formerly Raytheon) is the world's largest defence company by market capitalisation and one of the most strategically important contractors in the Western arsenal. It operates across three core areas: missiles and missile defence systems under the Raytheon brand, avionics and aerospace components through Collins Aerospace, and aircraft engines through Pratt & Whitney.

Its Patriot air defence system has become one of the most in-demand platforms in modern conflict. Patriot batteries have been deployed extensively in Ukraine and across NATO's eastern flank, and the waiting list for new systems and interceptor missiles runs well beyond what RTX's current production lines can satisfy. The company has been investing heavily in scaling manufacturing capacity, but lead times remain long, underpinning years of future revenue.

Beyond missiles, Collins Aerospace supplies avionics, cockpit systems and structural components to virtually every major military and commercial aircraft programme in the world. Pratt & Whitney powers the F-35 and a wide range of commercial narrowbody jets, giving RTX exposure to commercial aviation as well as defence.

That dual exposure is one of RTX's most distinctive qualities among the large-cap defence names because it means that it’s not purely reliant on government budgets.

RTX has also been investing in next-generation hypersonic weapons and directed energy systems, areas where the US military is prioritising development spending. Its scale, existing supplier relationships and manufacturing infrastructure give it a strong position to capture a disproportionate share of that emerging spend.

Safran (SAF)

Safran is a French aerospace and defence group that occupies a near-unique position in the sector. It’s simultaneously one of the most important suppliers to commercial aviation while also being a core part of the French and NATO defence industrial base. Like RTX, this dual exposure has made it one of the more resilient large-cap names in the space, with growth drivers that do not depend entirely on defence budgets moving in one direction.

Its most significant asset is its 50/50 joint venture with GE Aviation, CFM International, which produces the CFM56 and LEAP engines. The LEAP engine powers the Airbus A320neo and Boeing 737 MAX families, the two best-selling narrowbody aircraft in history, meaning Safran has a multi-decade installed base of engines generating aftermarket revenue in the form of maintenance, repair and overhaul services.

On the defence side, Safran produces helicopter turbines for military rotorcraft, inertial navigation systems, optronics and drone technologies. Its defence electronics division is a key supplier to the French armed forces and to export customers across Europe, the Middle East and Asia. France's position as one of the world's largest arms exporters means Safran's defence revenues have a broader international reach than many of its European peers.

Safran has also been investing in next-gen propulsion for military applications, including work on future combat air systems as part of the Franco-German FCAS programme. Its combination of long-duration aftermarket revenues and growing defence exposure makes it potentially one of the more balanced risk profiles among the top ten.

Lockheed Martin (LMT)

Lockheed Martin is the largest pure-play defence contractor in the United States and, by most measures, the defining company of the modern Western military industrial complex.

Its revenues are almost entirely derived from government contracts and its order backlog consistently runs into the hundreds of billions of dollars, a level of revenue visibility that almost no other company in any sector can match.

The F-35 Lightning II is the centrepiece of the business and the most expensive weapons program in history, with a total lifecycle cost that runs into the trillions of dollars. More than a dozen nations operate or have committed to the F-35, and it’s expected to remain in production well into the 2030s.

Beyond the initial sale, the maintenance and upgrades contracts associated with each aircraft generate decades of follow-on revenue. Lockheed is the prime contractor on a platform that effectively cannot be cancelled without destabilising the air forces of its allies.

Beyond the F-35, Lockheed operates the Sikorsky rotorcraft business, which produces the Black Hawk and CH-53K helicopters, as well as a missiles and fire control division that produces Hellfire missiles, HIMARS multiple rocket systems and Javelin anti-tank missiles, all of which have seen extraordinary demand driven by the war in Ukraine and allied stockpile rebuilding. Its space division is also a leading supplier of military satellites and spacecraft.

Honeywell (HON)

Honeywell is a diversified industrial technology company rather than a weapons manufacturer, but its aerospace and defence division is one of the most strategically embedded technology suppliers in the sector. Honeywell's products show up inside aircraft, missiles, spacecraft and military vehicles as the avionics, navigation, environmental controls and communications systems that make those platforms function.

Its defence and space business also supplies inertial navigation systems to missiles and precision-guided munitions, avionics to military aircraft, and satellite components to space programmes. 

Honeywell often supplies critical subsystems to multiple competing prime contractors, and it benefits from growth across the sector rather than being tied to the fortunes of a single programme. When both Lockheed and Boeing win contracts, Honeywell can win too.

The most significant corporate story at Honeywell in recent years has been the strategic shift towards becoming a more focused company. Last year, Honeywell announced plans to spin off its aerospace division into a standalone public company. 

Northrop Grumman (NOC)

Northrop Grumman operates at the most technologically advanced and classified end of the US defence industrial base. It’s less focused on high-volume production of conventional systems and more concentrated on cutting-edge platforms where it is often the sole or near-sole supplier, a position that provides significant pricing power and competitive moats.

The B-21 Raider stealth bomber is Northrop's flagship program and one of the most strategically important weapons systems the US military is currently developing. As the replacement for the ageing B-2 Spirit, the B-21 is designed to penetrate the most sophisticated air defence environments in the world.

Northrop is the sole prime contractor, and the program is expected to run for decades. Early deliveries have begun, and the total fleet requirement is substantial.

Beyond the B-21, Northrop is one of the leading contractors in the space domain, producing military satellites, missile warning systems and space-based intelligence assets. It’s also a major force in missile defence, autonomous systems, and cyber and electronic warfare. Its Ground Based Strategic

Deterrent program (the replacement for the US land-based intercontinental ballistic missile fleet) is one of the largest single defence contracts ever awarded, and Northrop is the prime.

The nature of Northrop's business means that much of what it does is classified, which limits publicly available information but also limits any competition. 

General Dynamics (GD)

General Dynamics is one of the most diversified defence primes, with a business model that spans land warfare systems, nuclear submarines, information technology services and premium business aviation. That breadth means it is exposed to a wider range of government spending priorities than more focused competitors, which can be both a strength and a source of complexity for investors trying to understand the company.

Its combat systems division produces the M1 Abrams main battle tank, the Bradley infantry fighting vehicle and the Stryker wheeled combat vehicle. Demand for Abrams tanks has surged significantly as the United States and allied nations replenish and upgrade ground forces in response to the war in Ukraine, while the US army's modernisation program means Abrams production and upgrade contracts are expected to be a consistent revenue driver for the foreseeable future.

Its marine systems division is one of only two US shipbuilders with the capability to construct nuclear-powered submarines, and it holds a major share of the Virginia-class submarine programme.

The AUKUS agreement, which commits the United States, United Kingdom and Australia to a multi-decade submarine industrial partnership, also adds further long-duration revenue visibility to this division.

General Dynamics' information technology and mission systems division is one of the largest defence IT businesses in the world, providing cloud infrastructure, cybersecurity and digital systems to the US federal government. This division provides a degree of insulation from traditional defence spending cycles because IT services are treated more as ongoing operational expenses than capital procurement.

Rounding out the business is Gulfstream, one of the world's premier business jet manufacturers, which provides commercial exposure and has been benefiting from strong demand in the private aviation market.

BAE Systems (BA)

BAE Systems is the largest defence contractor in Europe and the strategic anchor of the UK's defence industrial base. It has an unusually broad footprint, operating across combat aircraft, naval vessels, armoured vehicles, electronic warfare, cyber and intelligence. This is a range that few companies outside the United States can match.

Crucially, it also has a substantial and growing presence in the US market, derived from decades of acquisitions and partnerships, which gives it important transatlantic revenue diversification.

Its combat air business is a key player in both the Typhoon Eurofighter programme and the F-35, where BAE produces rear fuselages and other structural components for every aircraft built globally. It’s also a lead nation partner in the GCAP programme, the sixth-generation fighter jet being developed jointly with Japan and Italy, which will be one of the most important combat aircraft programs of the next few decades.

On the naval side, BAE is the principal surface ship builder for the Royal Navy and is deeply involved in the UK's nuclear submarine programme. The AUKUS agreement has also created a significant new opportunity for BAE, as it’s expected to play a central role in supporting Australia's acquisition of nuclear-powered submarines, potentially including construction work at new facilities in Australia itself.

Its land systems division produces the CV90 infantry fighting vehicle and the AS90 self-propelled artillery system, both of which have attracted strong European export interest as land forces across the continent modernise. The electronic systems and cyber division, meanwhile, positions BAE as a beneficiary of the growing convergence between traditional defence and digital warfare.

Rheinmetall (RHM)

Rheinmetall has undergone one of the most dramatic corporate re-ratings in global equities over the past two years, transforming from a mid-cap German industrial into one of the most closely watched defence stocks in the world. The catalyst has been Europe's rearmament cycle, and Rheinmetall sits at its absolute epicentre.

The company is Europe's largest manufacturer of large-calibre ammunition, producing the artillery shells and tank rounds that have become among the most strategically critical commodities of the war in Ukraine. Western stockpiles were severely depleted by deliveries to Kyiv, and governments across the continent are now committed to rebuilding those stocks while simultaneously increasing standing inventories.

Rheinmetall has secured contracts worth tens of billions of euros and has announced new or expanded manufacturing facilities in Germany, Lithuania, Romania, Ukraine and elsewhere to meet that new demand.

Its vehicle division produces the Lynx infantry fighting vehicle and the Panther main battle tank, both of which are being actively evaluated or procured by multiple European armies. Germany's own Bundeswehr modernisation programme represents a particularly large domestic opportunity, as decades of underinvestment left the German military significantly under-equipped.

The company has also been expanding aggressively into adjacent areas including air defence systems, military trucks and soldier systems, broadening its revenue base beyond ammunition and vehicles. 

L3Harris Technologies (LHX)

L3Harris was formed by the merger of L3 Technologies and Harris Corporation in 2019, creating a focused mid-tier defence technology company with particular strength in communications, electronic warfare, intelligence and surveillance, and space payloads.

It occupies a distinctive position in the defence ecosystem; large enough to win significant prime contracts, but specialised enough to be an essential supplier to the larger primes and to government agencies that value technical depth over scale.

Its tactical communications business supplies radio systems and battlefield networking equipment to the US military and allied forces. These systems are the connective tissue of modern warfare, enabling forces to coordinate across complex multi-domain environments, and demand has been strong as militaries invest in upgrading legacy communications infrastructure.

L3Harris has a significant presence in electronic warfare, producing jamming systems, signals intelligence equipment and radar warning receivers. As adversary air defence systems have grown more sophisticated, the value of electronic warfare capability has risen sharply, and L3Harris is one of the most capable suppliers in this domain.

Its growing space and airborne systems division produces sensors, cameras, and payloads for military satellites and intelligence-gathering aircraft.

Thales (HO)

Thales operates across air and missile defence systems, naval electronics, ground transportation security, digital identity and security and aerospace. That breadth, combined with the backing of the French state as a significant shareholder, gives Thales a stability and strategic positioning that distinguishes it from more commercially oriented peers.

Its defence electronics business is one of the most capable in the world, producing radar systems, sonar, fire control systems and mission systems for customers across NATO and beyond. Thales radars equip naval vessels and air defence batteries operated by dozens of countries, and the company has long-standing supplier relationships with both the French armed forces and major export customers in the Middle East, Asia and elsewhere.

In missile systems, Thales operates as a key partner in MBDA, the European missile consortium it shares with Airbus and BAE Systems. MBDA is one of the world's leading missile manufacturers, and demand for its products has surged in line with the broader European rearmament cycle.

Its digital security and cybersecurity division is one of the largest in Europe, providing encryption, digital identity management, and critical infrastructure protection to governments and corporations.

As the boundary between physical defence and cyber defence continues to blur, this division positions Thales ahead of a number of its more hardware-focused peers.

Thales also has a significant space business through its Thales Alenia Space joint venture with Leonardo, which produces satellites for both military and commercial applications. 

Pros and cons of investing in defence stocks

As with all investing themes there are advantages and drawbacks to defence stocks.

Pros of defence stocks

• Contract visibility — Government defence contracts often run for a decade or more, giving defence companies revenue predictability that is rare in most other sectors. Order backlogs at the largest primes are frequently measured in hundreds of billions of dollars, meaning revenues are effectively visible years in advance.
• Structural demand driver — The current rearmament cycle is driven by policy commitments and treaty obligations, not discretionary spending. NATO's binding GDP targets, national security legislation and the operational lessons of recent conflicts make this a more durable demand environment than typical capital expenditure cycles.
• Pricing power — As sole or near-sole suppliers of critical weapons systems, the largest defence contractors often operate in low-competition environments. In many cases there is simply no alternative supplier, which supports margins and reduces the commercial risk associated with most industrial businesses.
• Dividend reliability — Many of the largest defence companies have strong and consistent dividend track records, reflecting the stable and predictable nature of their cash generation.

Cons of defence stocks

• Political and ethical risk — Defence stocks attract ongoing scrutiny from ESG-focused investors and institutions. Some large asset managers exclude or underweight defence on ethical grounds, which can affect share register composition, index inclusion and access to certain pools of institutional capital.
• Budget dependency — While current spending trends are favourable, defence budgets are ultimately set by governments and can shift with political administrations, fiscal pressures or shifts in strategic priorities. A change in US political direction or a negotiated end to major conflicts could alter the near-term demand outlook.
• Execution risk — Large, complex programs can run significantly over budget and erode margins. This has been a recurring issue at several of the major US primes.
• Concentration risk — Many companies derive a significant share of revenues from a single platform or a single government customer. Cancellations or budget cuts carry outsized consequences in a way that does not apply to businesses with more diversified revenue bases.