Which Defence Stocks Are Set to Surge in 2026? Top 5 to Watch

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 Lockheed Martin, RTX Corporation, Northrop Grumman, Boeing and L3Harris Technologies. All five benefit from record order backlogs, multi-year NATO contracts and the structural shift toward sustained military spending driven by the Ukraine conflict, Iranian missile threats, European rearmament and Indo-Pacific tensions.

The global defence industry has entered its strongest growth cycle in decades. The Trump administration has proposed a historic $1.5 trillion defence budget for fiscal year 2027. Conflicts in Ukraine and the Middle East have depleted Western stockpiles and reshaped strategic priorities. European defence stocks have surged over 260% since Russia’s February 2022 invasion, and the spending trajectory shows no sign of reversing.

As Europe moves from emergency military support into long-term rearmament programmes stretching well into the next decade, these five US defence contractors sit at the centre of the procurement pipeline.

1. Lockheed Martin

The world’s largest pure-play defence contractor secured a landmark $9.8 billion contract in September 2025 for 1,970 Patriot Advanced Capability-3 interceptors — the largest contract in its Missiles and Fire Control history. Production is ramping from approximately 600 interceptors in 2025 to 2,000 annually over seven years.

Shares trade around $485, up approximately 8% following fourth-quarter earnings. The backlog stands at $194 billion, providing multi-year revenue visibility. For 2026, Lockheed guided revenue between $77.5 billion and $80 billion, implying roughly 5% organic growth.

Beyond missiles, Lockheed finalised agreements for 296 F-35 jets across lots 18-19, with a record 191 F-35s delivered in 2025. International partners including Israel, Poland and Taiwan continue ordering advanced variants. Capital expenditure and R&D spending rises 35% in 2026 to $5 billion, specifically targeting missile production capacity and next-generation systems.

2. RTX Corporation

RTX’s Raytheon division has become Europe’s preferred air defence provider as the continent rearms. The company secured multiple Patriot contracts in 2025: $1.7 billion from Spain for four complete systems, $529 million to replenish the Netherlands’ donated unit to Ukraine, and $168 million from Romania. Nineteen countries now operate the Patriot platform.

A massive $50 billion umbrella contract from the Defense Logistics Agency covers Patriot sustainment through 2045 — unprecedented long-term visibility. RTX also doubled AIM-120 AMRAAM production to 1,200 missiles annually, with a $3.5 billion contract supplying Ukraine, the US and 18 allied nations through 2031. J.P. Morgan raised price targets to $200 in December 2025.

The European order pipeline reflects a generational shift. NATO spending is forecast to reach 2.8% of GDP by 2030, implying 7% compound annual growth through the decade. RTX’s Patriot dominance positions it as a primary beneficiary as countries including Germany, Spain and Romania modernise their air defences.

3. Northrop Grumman

Northrop sits at the nexus of America’s most critical national security programmes. The B-21 Raider stealth bomber entered Low-Rate Initial Production, with an anticipated $4.5 billion acceleration deal by March 2026. The Sentinel intercontinental ballistic missile programme ensures sustained federal support regardless of political changes.

Backlog reached $95.7 billion, with international sales surging 32% year-over-year. Fourth-quarter earnings per share of $7.67 significantly exceeded consensus estimates of $6.43. Shares gained approximately 15% from September 2025 through early 2026, trading near all-time highs.

Northrop’s Space Systems segment is positioned for 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 constellation, reinforcing leadership in space-based defence.

4. Boeing

Boeing’s Defence, Space & Security division secured over $12.8 billion in contracts in late 2025, providing crucial stability alongside its well-documented commercial aviation challenges. The centrepiece was an $8.6 billion Foreign Military Sales contract for Israel — 25 new F-15IA “Eagle II” jets with options for 25 more, plus modernisation kits for existing aircraft, finalised following a Trump-Netanyahu meeting in December 2025.

Boeing also won a $2.04 billion B-52 engine replacement programme extending the bomber’s service life into the 2050s. Defence revenue hit $6.9 billion in Q3 2025, up 25% year-over-year, though operating margins remain thin at 1.7% following $5 billion in 2024 losses from fixed-price contract overruns. Shares rose approximately 30% over twelve months to around $217.

The company’s 75-year partnership with Israel and its $4.7 billion acquisition of Spirit AeroSystems — bringing critical fuselage production in-house — strengthen its competitive position as European and Middle Eastern defence procurement accelerates.

5. L3Harris Technologies

CEO Christopher Kubasik called 2025 the company’s “best year ever” — record orders, expanding margins and $2.8 billion in adjusted free cash flow, up over 20% year-over-year. Revenue reached $21.9 billion with 5% organic growth and 15.8% adjusted operating margin.

For 2026, management guided revenue between $23.0 billion and $23.5 billion, implying 7% organic growth. Shares surged approximately 89% over five years and 40% year-to-date through late 2025, trading around $346.

L3Harris produces what the company describes as the only proven on-orbit system capable of tracking Iran’s new hypersonic missiles — directly addressing the threat driving much of the current spending cycle. A $2.2 billion South Korea contract boosted international orders, while the US Navy selected its Red Wolf for a Precision Attack Strike Munition contract. A planned Missile Solutions spinoff could unlock additional shareholder value.

What’s Driving the Spending

Four structural forces underpin the investment case. The Ukraine conflict has depleted Western missile stockpiles, creating multi-year replenishment demands. Iran’s advancing missile programme — including hypersonic weapons development — has accelerated demand for integrated air and missile defence. Europe’s rearmament represents a generational shift, with Germany, Poland and the UK investing hundreds of billions in modernisation. And rising Indo-Pacific tensions are driving increased US and allied spending on advanced fighters, missile defence and space-based capabilities.

The combined effect is a sector supported by bipartisan political backing, multi-year procurement programmes and record backlogs that provide unusual revenue visibility. However, investors should monitor execution risks on complex programmes, margin pressures from fixed-price contracts and the Trump administration’s proposals to limit dividends and stock buybacks until production accelerates — restrictions that, while not yet enacted, could impact near-term shareholder returns.

With European defence now functioning as one of the continent’s largest industrial growth sectors and NATO budgets locked in through the decade, these five contractors are positioned to deliver sustained growth well beyond 2026.

This article is for informational purposes only and does not constitute financial advice. Investors should conduct their own research or consult a qualified financial adviser before making investment decisions.

Frequently Asked Questions

Which defence stock has the largest order backlog? Lockheed Martin leads with a $194 billion backlog as of late 2025, followed by Northrop Grumman at $95.7 billion. Both backlogs are at record levels and provide multi-year revenue visibility driven by the F-35 programme, PAC-3 missile production, the B-21 bomber and Sentinel ICBM.

Why are European countries buying American defence systems? Despite growing efforts to build domestic capacity, European nations still source approximately 60% of military procurement from US companies. The Patriot air defence system, F-35 fighter jet and AMRAAM missiles are combat-proven platforms with no European equivalents at comparable scale. However, analysts expect Europe to tilt procurement toward continental suppliers as spending increases and concerns grow over US commitment to NATO.

Are defence stocks overvalued in 2026? European defence suppliers trade at approximately 30 times forward earnings — roughly double their five-year average and comparable to technology giants like Microsoft and Nvidia. While valuations are elevated, the sector benefits from structural demand drivers, record backlogs and multi-year government commitments that provide unusual earnings visibility. The key risk is whether geopolitical tensions de-escalate faster than expected, reducing the urgency behind current spending plans.

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