Before getting into the data, a note on where I stand personally. I have owned RTX for roughly two years and have been closely watching General Dynamics for a while. That context shapes how I think about this sector, and I want to be upfront about it. This report is analysis, not advice — but you deserve to know where I am coming from.
Defense stocks are one of the few areas of the market where geopolitical instability is a direct fundamental tailwind rather than a risk. When the world gets more dangerous, governments spend more on weapons, and the contractors who build those weapons see their order books grow. That dynamic is playing out in real time right now, at a scale that has few historical comparisons.
The US entered 2026 with defense spending already at record levels. Congress passed an $839 billion defense bill for fiscal year 2026, the largest military budget in American history. Then the Iran war began on February 28, and the numbers got significantly larger. US military operations against Iran had already cost $12+ billion within the first weeks of the conflict, and the Pentagon has asked the White House to approve a supplemental request of more than $200 billion to fund the intensifying war effort. Defense Secretary Pete Hegseth confirmed the figure and suggested it could grow, telling reporters plainly that "it takes money to kill bad guys."
The longer term trajectory is equally striking. Trump has called for a $1.5 trillion military budget for fiscal year 2027, a roughly 50 percent increase over current spending levels — which would represent the largest single year increase in US defense spending since the Korean War. Even if Congress does not approve the full figure, the directional signal for defense contractors is unambiguous. Budgets are going up, not down, and they are going up fast.
For investors this creates a compelling but nuanced picture. The tailwinds are real and structural. The valuations, in some cases, have already moved to reflect them. Here is how the major names stack up.
Lockheed Martin (LMT) — $615.84
Lockheed is the world's largest defense contractor and the central node of the Western military supply chain. The company enters 2026 with a record $194 billion backlog and guidance for full year sales of $77.5 to $80 billion, implying roughly 5 percent revenue growth and over 25 percent segment profit expansion. Free cash flow is projected between $6.5 and $6.8 billion.
The Iran conflict has accelerated demand for Lockheed's most critical programs. The company signed a framework agreement to more than triple PAC-3 MSE interceptor production from 600 to 2,000 units annually, and a separate deal to quadruple THAAD production to 400 units per year. These are not speculative contracts. They reflect munitions being consumed in active combat that need to be replenished and then some.
In 2026, Lockheed continues to dominate global defense procurement with record demand for the F-35 across Europe and Asia, including expanded orders from Poland, Japan, and Finland.
The valuation question is legitimate. Lockheed's 52-week range runs from $410 to $692, with the stock currently sitting at $615 and analysts carrying an average price target of around $664.The stock has run hard. The backlog provides years of revenue visibility, but at current multiples the upside from here is more measured than it was 12 months ago.
RTX Corporation (RTX) — $189.71
This is the one I own and have held for about two years. RTX was formed from the 2020 merger of Raytheon and United Technologies, making it a hybrid of pure defense and commercial aerospace. That dual exposure has historically been a source of criticism from investors who wanted cleaner sector exposure. In the current environment, it is starting to look like a feature rather than a bug.
Morgan Stanley analyst Kristine Liwag rates RTX as her top aerospace industry pick, citing strong tailwinds in both its commercial and defense businesses and the potential for sustainable margin expansion and revenue growth. Morgan Stanley carries an overweight rating and a $235 price target on the stock.
RTX's order book stands at $251 billion, one of the largest in the sector. The Raytheon subsidiary is at the center of the current conflict, producing the interceptor missiles being used in active operations across the Middle East. That demand is not going away when the shooting stops — stockpiles will need replenishing and allied nations are accelerating their own procurement.
There is one notable risk specific to RTX that investors should monitor. Trump singled out Raytheon as "the least responsive to the needs of the Department of War" and threatened to cut the Pentagon's business ties with the company unless it increases investment in plants and equipment and halts stock buybacks. RTX shares fell on those comments and the relationship with the administration bears watching. My read is that this is negotiating pressure rather than a structural break, given how embedded Raytheon's systems are in active US military operations, but it is a real headline risk.
At $189, RTX trades well below Morgan Stanley's $235 target. For a position I have held for two years through various market conditions, the current setup with an active conflict driving demand for exactly what Raytheon produces remains the most favorable fundamental backdrop I have seen.
Northrop Grumman (NOC) — $706.95
Northrop is the most strategically differentiated of the major defense contractors. While Lockheed and RTX compete heavily in missiles and fighters, Northrop owns the nuclear deterrence and next generation aircraft franchise. The company entered the final testing phase of the B-21 Raider in 2025, with first deliveries expected in 2026, and secured new funding for the Sentinel ICBM system under the FY2026 defense budget.
Morgan Stanley carries an overweight rating and a $765 price target on Northrop, citing potential for the company to secure several large government awards in 2026 related to the B-21, F/A-XX, and Golden Dome projects, and noting the company will likely exceed its initial 2026 revenue growth guidance of 4.5 percent.
In its most recent earnings report, Northrop posted earnings of $7.67 per share, well above the Wall Street estimate of $6.46, with its defense systems division growing sales 14 percent year over year. Northrop's Q1 2026 results are scheduled for April 21 and will be the next major data point for the stock.
The valuation here is the most stretched of the group. Northrop carries a forward P/E of 24.2x and a market cap of approximately $89 billion. For a company with Northrop's multi-decade contract visibility and unique positioning in nuclear modernization, that premium has historically been justified. But it is worth acknowledging that the stock has already moved significantly in anticipation of the spending surge.
General Dynamics (GD) — $345.78
GD is the name I have been watching most closely without yet pulling the trigger. The combination of naval shipbuilding, armored vehicles, and the Gulfstream business jet franchise makes it the most diversified of the group, which has historically meant it is less exciting in periods of pure defense enthusiasm but more resilient when cycles turn.
General Dynamics recently secured additional orders for Virginia-class submarines and expanded Abrams tank upgrades for NATO allies including Poland and Romania. The company carries a backlog exceeding $95 billion with stable free cash flow and a dividend that has grown consistently.
General Dynamics is one of two primary US military shipbuilders and has one of the largest defense focused IT and services businesses in the sector, providing revenue stability during periods when the Pentagon pulls back on equipment purchases. That IT and services floor is meaningful. It means General Dynamics has a base of predictable recurring revenue that pure defense hardware names do not.
GD trades at a forward P/E of approximately 22.65x with an analyst upside estimate of 11.8 percent from current levels. Of the names covered here it represents the most reasonable valuation relative to its growth and backlog profile, which is part of why I have been watching it carefully.
The Valuation Reality
Defense stocks as a group have re-rated meaningfully over the past 12 months. The tailwinds are genuine and the spending increases are structural rather than cyclical. But it is worth being honest that a lot of good news has already been priced in. European defense names have already re-rated sharply after a year of exceptional performance, while US counterparts including Lockheed, RTX, and General Dynamics remain relatively discounted compared to their European peers, which provides some comfort on relative valuation.
The biggest near term risk is not fundamental — it is political. While the $200 billion supplemental has been requested, some White House officials do not believe it has a realistic chance of full approval in Congress. A scaled back supplemental or a drawn out budget negotiation could create short term pressure on stocks that have priced in the full spending scenario.
The medium term picture, regardless of how the supplemental resolves, remains constructive. The fiscal year 2026 National Defense Authorization Act already proposes $924.7 billion in US military spending, and global tensions across the Middle East, Ukraine, and the Taiwan Strait may compel further increases for years to come. Defense stocks perform best when government spending is predictable and multiyear. That is exactly the environment the sector is operating in right now.
Key Dates to Watch
April 21, 2026 — Northrop Grumman Q1 2026 earnings
April 21, 2026 — Lockheed Martin Q1 2026 earnings
April 6, 2026 — Trump's deadline for Iran to reopen the Strait of Hormuz
Sources
Investing.com — LMT, RTX, NOC, GD stock prices, March 28 2026
Yahoo Finance — Defense sector comparative pricing, March 28 2026
US News and World Report — 7 Best Defense Stocks to Buy Now, February 2026
Morgan Stanley via US News — RTX overweight rating and $235 price target, February 2026
Motley Fool — Best Defense Stocks to Buy in 2026
CNBC — Defense Companies Raise 2025 Outlooks on Higher Demand, October 2025
CNBC — Trump Says He Will Not Permit Dividends and Stock Buybacks for Defense Companies, January 2026
Bloomberg — Lockheed Martin and Northrop Grumman Jump on Trump Defense Spending Plans, January 2026
Tickeron — Lockheed Martin Stock Analysis and Backlog Data, 2026
Gainify — Top Defense Stocks to Consider in 2026
CNBC — Hegseth Says $200 Billion Iran War Spending Request Could Move, March 2026
Time Magazine — Iran War Set to Boost Business for Defense Contractors, March 2026
Air and Space Forces Magazine — 2027 Defense Budget $1.5 Trillion Debate, March 2026
World Socialist Web Site via Nuclear News — Trump $200 Billion Iran Spending Request, March 2026