Defense Stocks LMT & RTX: Buy on $1.5T Spending?
💡 Key Takeaway
Record US defense spending of $1.5 trillion in 2027 will significantly boost Lockheed Martin and RTX, both with massive backlogs and strong competitive positions.
What Happened: US Defense Budget Soars to $1.5 Trillion
The United States plans to increase defense spending to $1 trillion in 2026 and approximately $1.5 trillion in 2027, which would be the largest year-over-year increase ever if approved. This surge is driven by rising geopolitical tensions, including conflicts involving U.S.-Iran and Ukraine-Russia, as well as efforts to modernize the military and bolster the defense industrial base.
Defense contractors are expected to benefit from growing order books and long-term contracts that provide visibility into future earnings. Lockheed Martin and RTX Corporation stand out as key beneficiaries due to their strong positions in the industry.
Lockheed Martin has a backlog exceeding $186 billion, anchored by its flagship F-35 Lightning II jet fighter program, which is projected to cost $2.1 trillion over its 94-year lifecycle. The company also recently secured a $35 billion contract for THAAD interceptors and acquired Ultra Maritime Solutions for $3.45 billion to expand into undersea weapons.
RTX Corporation boasts a backlog of $271 billion, up 25% year-over-year, spanning defense and commercial aerospace. Its segments include Raytheon (Patriot systems, missiles), Pratt & Whitney (aircraft engines), and Collins Aerospace. Recent wins include a $1.1 billion contract for tactical missiles and a partnership to double Stinger missile production.
Why It Matters: Predictable Revenue and Long-Term Growth
The massive increase in defense spending translates into multi-year contracts for Lockheed Martin and RTX, providing predictable revenue streams that buffer against economic downturns. For Lockheed, the F-35 program alone generates roughly a third of its revenue and ensures decades of aftermarket services, including maintenance and upgrades.
RTX's diversified portfolio balances defense with commercial aerospace, reducing risk. Its $271 billion backlog guarantees future earnings, while recent contracts for air defense systems and missiles directly benefit from rising military budgets.
Both companies have strong competitive moats: Lockheed dominates in fighter jets and missile defense, while RTX leads in propulsion and air defense. The spending surge also supports innovation in space-based defense and undersea warfare, areas where both are investing.
Investors should note that these stocks are less sensitive to economic cycles due to government backing. However, execution risks and budget approval delays could impact short-term performance. Overall, the long-term outlook is highly favorable.
Source: The Motley Fool
Analysis generated by Bobby AI quantitative model, reviewed and edited by our research team. This is not financial advice. Always do your own research before making investment decisions.
Bobby Insight
Both LMT and RTX are strong buys for long-term investors seeking exposure to rising defense spending.
Record defense budgets provide multi-year visibility for revenue and earnings. LMT's monopoly-like position in fighter jets and missile defense, combined with RTX's diversification and backlog growth, make them top picks. Risks include budget delays and geopolitical shifts, but the trend is clearly positive.
What This Means for Me
