5 Defence Stocks That Tripled Last Year — Here’s Why 2026 Could Be Even Bigger

Europe’s permanent war economy minted massive gains in 2025 — and these contractors are positioned to do it again.

Q: Which defence stocks should I buy in 2026?

A: The top five defence stocks positioned for growth are Rheinmetall, BAE Systems, Leonardo, Thales and SAAB. All five are benefiting from record European defence budgets, multi-year NATO contracts and the structural shift toward a permanent war economy in Europe.

Rising defence budgets, sustained geopolitical tensions and long-term rearmament plans are driving strong momentum across the sector. These are the five defence stocks investors are watching most in 2026.

The global defence industry has entered its strongest growth cycle in decades, propelled by unprecedented geopolitical instability and surging military budgets worldwide. With the Trump administration proposing a historic $1.5 trillion defence budget for fiscal year 2027 and ongoing conflicts in Ukraine and the Middle East reshaping strategic priorities, defence contractors are experiencing record order backlogs and sustained demand. Here are the five leading defence stocks positioned to capitalise on this once-in-a-generation opportunity.

1. Lockheed Martin: The $9.8 Billion Missile Defence Giant

Lockheed Martin stands as the world’s largest pure-play defence contractor, and its recent contract wins underscore why analysts remain bullish heading into 2026. The company secured a landmark $9.8 billion contract in September 2025 for 1,970 Patriot Advanced Capability-3 Missile Segment Enhancement interceptors, marking the largest contract in Lockheed Martin Missiles and Fire Control history.

Strategic Position and Performance

The PAC-3 MSE contract reflects surging global demand driven directly by Iranian ballistic missile threats and the ongoing Russia-Ukraine conflict. Lockheed ramped production from approximately 600 interceptors in 2025 to a planned 2,000 annually over seven years, demonstrating aggressive capacity expansion that CEO Jim Taiclet described as answering President Trump’s call to prioritise weapons production over shareholder returns.

Stock performance has been robust, with shares trading around $485 in early January 2026, up approximately 8% following the company’s fourth-quarter earnings announcement. The company’s backlog reached a staggering $194 billion, providing multi-year revenue visibility. For 2026, Lockheed guided to revenue between $77.5 billion and $80 billion, implying approximately 5% organic growth year-over-year.

Key Contract Wins

Beyond the PAC-3 contract, Lockheed finalised agreements for 296 F-35 fighter jets across lots 18-19 in September 2025, with deliveries beginning in 2026. The company delivered a record 191 F-35s in 2025, exceeding all previous years. The F-35 programme alone ensures sustained revenue streams, particularly as international partners including Israel, Poland, and Taiwan continue ordering advanced variants.

Additionally, Lockheed secured a $720 million contract for Joint Air-to-Ground Missiles and HELLFIRE missiles, supporting U.S. forces and key NATO allies. The company is also investing $5 billion in capital expenditure and research and development in 2026, a 35% increase from 2025, specifically targeting missile production capacity and next-generation defence systems.

Geopolitical Drivers

The Ukraine conflict has depleted Western missile stockpiles, creating urgent replenishment demands. Meanwhile, evolving threats from Iran’s hypersonic missile programme and China’s military modernisation have reinforced demand for Lockheed’s advanced missile defence solutions. The PAC-3 MSE system has proven combat-effective against ballistic missiles, cruise missiles, and hypersonic threats, positioning it as a must-have capability for America’s allies globally.

2. RTX Corporation: Patriot Systems Dominate European Orders

RTX Corporation, through its Raytheon division, has emerged as Europe’s preferred air defence provider as the continent rearms in response to the Russia-Ukraine war. The company secured multiple major Patriot contracts throughout 2025, including a $1.7 billion order from Spain for four complete Patriot systems, a $529 million contract to replenish the Netherlands’ donated Patriot unit to Ukraine, and a $168 million award for Romania.

Contract Momentum and Market Position

RTX’s Patriot system has become the gold standard for integrated air and missile defence, with 19 countries now operating the platform. The combat-proven system has intercepted hundreds of advanced aerial threats in Ukraine and the Middle East, solidifying its reputation. Germany, the Netherlands, Spain, and Romania all placed substantial Patriot orders in 2025, reflecting Europe’s urgent modernisation needs.

The company also won a massive $50 billion umbrella contract from the Defense Logistics Agency in August 2025, covering Patriot sustainment, spare parts, and production support through 2045. This agreement provides unprecedented long-term revenue visibility and strengthens the defence industrial base by guaranteeing sustained demand over two decades.

Production Expansion

RTX doubled production of AIM-120 AMRAAM air-to-air missiles in 2024, reaching 1,200 missiles annually. A $3.5 billion contract awarded in July 2025 will supply these missiles to Ukraine, the United States, and 18 allied nations through fiscal year 2031. This reflects direct demand from the Ukraine conflict, where F-16 fighters rely on AMRAAM missiles to counter Russian aerial threats.

Stock Performance and Outlook

RTX shares have benefited from the defence spending surge, with analysts from J.P. Morgan raising price targets to $200 in December 2025. The company’s diversified portfolio spanning Collins Aerospace, Pratt & Whitney engines, and Raytheon defence systems provides resilience across commercial and military markets. However, Iran-Israel tensions and continued European rearmament remain key catalysts driving near-term growth.

3. Northrop Grumman: B-21 Raider and Space Dominance

Northrop Grumman has positioned itself at the nexus of America’s most critical national security programmes, particularly nuclear modernisation and space-based missile defence. The company’s B-21 Raider stealth bomber programme and Sentinel intercontinental ballistic missile are central to the Pentagon’s priorities, while its satellite capabilities address growing threats in the space domain.

Record Backlog and Financial Performance

Northrop’s backlog reached $95.7 billion in 2025, with international sales surging 32% year-over-year in the third quarter alone. The company reported fourth-quarter earnings per share of $7.67, significantly exceeding consensus estimates of $6.43, demonstrating robust profitability despite revenue challenges. Stock performance has been strong, with shares gaining approximately 15% from September 2025 through early 2026, trading near all-time highs.

Strategic Programmes

The B-21 Raider bomber programme entered Low-Rate Initial Production, with an expected acceleration deal worth $4.5 billion anticipated by March 2026 to speed production. This represents a major catalyst for the stock, as the B-21 addresses Pentagon priorities for long-range strike capabilities against peer adversaries like China.

Northrop’s Space Systems segment is transitioning through 2026, with analysts viewing it as a “transition year” before re-acceleration in 2027 as high-volume satellite production matures. The company secured contracts across all four tranches of the Space Development Agency’s missile tracking satellite constellation, reinforcing its leadership in space-based missile defence.

Contract Wins

Major 2025 contract awards included a $972 million Air Force contract for modelling and simulation services, notable awards for the RQ-4B Global Hawk drone programme, and continued development work on the Sentinel ICBM. The company also won a $233 million contract with the U.S. Navy and Australian Defense Force for advanced lightweight torpedoes in early 2026.

Geopolitical Context

The “New Cold War” dynamics with China and continued Russia-Ukraine tensions have made nuclear modernisation and space dominance Pentagon funding priorities. Northrop’s unique positioning as prime contractor for both the B-21 and Sentinel programmes ensures sustained federal support regardless of political changes, with nearly unanimous Congressional backing for these strategic programmes.

4. Boeing: Israel Contracts and Defence Recovery

Boeing’s Defence, Space & Security division is experiencing a renaissance despite the company’s well-documented commercial aviation challenges. The division secured over $12.8 billion in contracts in late 2025, providing crucial stability and demonstrating the strategic value of Boeing’s defence portfolio.

Major Contract Awards

The centrepiece was an $8.6 billion Foreign Military Sales contract for Israel, finalised in December 2025 following a high-profile meeting between President Trump and Prime Minister Netanyahu. The contract includes 25 new F-15IA “Eagle II” fighter jets with an option for 25 more, plus modernisation kits for 25 existing F-15I aircraft. These variants feature long-range strike capabilities and capacity to carry up to 14 tons of munitions, directly addressing Israel’s operational needs amid ongoing Iranian threats.

Boeing also won a $2.04 billion contract for the B-52 Commercial Engine Replacement Programme, extending the iconic bomber’s service life into the 2050s. Combined with other fourth-quarter awards, these contracts represent approximately 73% of Boeing Defence’s entire 2024 revenue, demonstrating extraordinary contract momentum.

Financial Performance

Despite challenges, Boeing’s defence division reported $6.9 billion in revenue for the third quarter of 2025, a 25% increase year-over-year. However, operating margins remained thin at just 1.7%, following brutal losses in 2024 exceeding $5 billion due to cost overruns on fixed-price contracts like the KC-46 tanker.

Stock performance reflected cautious optimism, with shares rising approximately 30% over twelve months, closing around $217 in late December 2025. The company’s acquisition of Spirit AeroSystems for $4.7 billion in December 2025 brought critical fuselage production in-house, addressing quality and supply chain issues.

Strategic Relationship with Israel

Boeing maintains a 75-year partnership with Israel, supplying F-15I fighters, Apache helicopters, and KC-46 tankers to the Israeli Air Force. This enduring relationship, combined with over 45 local Israeli suppliers contributing to Boeing products, provides competitive advantages in securing additional defence contracts amid escalating regional tensions with Iran and its proxies.

5. L3Harris Technologies: Missile Defence and Communications Leadership

L3Harris Technologies has emerged as a critical player in space-based missile defence and tactical communications, aligning directly with Pentagon modernisation priorities. The company reported what CEO Christopher Kubasik described as its “best year ever” in 2025, with record orders, expanding margins, and strong cash generation.

Financial Performance and Guidance

L3Harris delivered 2025 revenue of $21.9 billion, representing 5% organic growth, with adjusted segment operating margin reaching 15.8%. The company generated $2.8 billion in adjusted free cash flow, up more than 20% year-over-year. For 2026, management guided to revenue between $23.0 billion and $23.5 billion, implying approximately 7% organic growth, with GAAP earnings per share expected between $11.30 and $11.50.

Stock performance has been exceptional, with shares surging approximately 89% over five years and 40% year-to-date through late 2025. The company trades around $346, with analyst price targets suggesting further upside potential.

Contract Wins and Strategic Positioning

L3Harris won crucial contracts across the Space Development Agency’s satellite constellation tranches, establishing itself as a leader in space-based missile defence. The company has satellites in orbit, in production, and in backlog, with technology capable of tracking Iran’s new hypersonic missiles. The company emphasised it produces “the only proven on-orbit system capable of tracking Iran’s new hypersonic missiles,” directly addressing emerging threats.

The company secured a $2.2 billion contract from South Korea in the third quarter of 2025, boosting its international order book significantly. Additionally, the U.S. Navy selected L3Harris’ Red Wolf for a Precision Attack Strike Munition contract, supporting future revenue growth.

Strategic Initiatives

L3Harris is pursuing a Missile Solutions spinoff, with reported government investment interest, while simultaneously raising its dividend. These moves aim to unlock shareholder value while maintaining focus on high-growth defence technology programmes. The company is also expanding production capacity through increased capital expenditure, targeting approximately $600 million in 2026.

The company’s portfolio spans missile warning and defence, tactical communications, advanced sensors, and electronic warfare capabilities, positioning it across multiple Pentagon priority areas including the Golden Dome missile defence initiative.

Geopolitical Factors Driving Defence Spending

Russia-Ukraine Conflict

The ongoing war in Ukraine has fundamentally reshaped global defence priorities. Western nations have transferred tens of billions of dollars in weapons to Ukraine, depleting stockpiles of missiles, artillery ammunition, and air defence systems. This has created urgent replenishment demands driving multi-year production contracts for companies like Lockheed Martin, RTX, and Boeing.

Iranian Missile Threats

Iran’s missile programme advancements, including development of hypersonic weapons, have accelerated demand for integrated air and missile defence systems. The recent conflicts involving Israel and Iranian proxies have demonstrated the critical importance of systems like Patriot, PAC-3, and THAAD, directly benefiting Lockheed Martin, RTX, and L3Harris.

European Rearmament

Europe’s defence spending surge represents a generational shift. Germany, Poland, the United Kingdom, and other NATO members are investing hundreds of billions in military modernisation, with air defence systems as top priorities. RTX’s Patriot dominance in European markets exemplifies this trend, while Lockheed’s F-35 and missile systems benefit from expanded European orders.

China and Indo-Pacific Tensions

Rising concerns about China’s military capabilities and Taiwan contingencies are driving increased U.S. and allied defence spending in the Indo-Pacific. This supports demand for advanced fighters, missile defence systems, and space-based capabilities that Lockheed Martin, Northrop Grumman, and Boeing provide.

Investment Outlook

The defence sector in 2026 presents one of the most compelling investment themes, supported by multi-year procurement programmes, bipartisan political support, and sustained geopolitical tensions. These five companies combine technological leadership, established customer relationships, and exposure to the Pentagon’s highest-priority programmes.

However, investors should monitor potential policy risks, including the Trump administration’s proposals to limit dividends and stock buybacks until production accelerates. While no measures have been enacted, such restrictions could impact near-term shareholder returns. Additionally, execution risks on complex programmes and margin pressures from fixed-price contracts remain considerations, particularly for Boeing’s defence division.

Nevertheless, with record backlogs, accelerating production rates, and unprecedented defence budgets on the horizon, these five defence stocks are positioned to deliver sustained growth well beyond 2026.