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What sectors gain from increased defense spending?

AlphaOS investment intelligence · Research and education only — not investment advice · Updated Sep 27, 2026

Direct answer

Six primary sectors benefit directly from increased defense spending: aerospace & defense, cybersecurity, semiconductors, shipbuilding & naval systems, satellite & space technology, and advanced materials/manufacturing. The largest defense contractors — Lockheed Martin (LMT), RTX Corporation (RTX), Northrop Grumman (NOC), General Dynamics (GD), and L3Harris (LHX) — capture the greatest revenue uplift. Beyond primes, cybersecurity firms like Booz Allen Hamilton (BAH) and Leidos (LDOS) benefit from intelligence and IT contracts. Semiconductor companies supplying mil-spec chips, including Texas Instruments and Intel's government division, see elevated demand. NATO members committing to 2%+ GDP defense targets and the U.S. FY2025 defense budget of $886 billion sustain multi-year revenue visibility across these verticals.

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Key Takeaways

  • Aerospace & defense is the primary beneficiary — Lockheed Martin generated $67.6B in 2023 revenue, with ~97% from government contracts including F-35, missile systems, and classified programs
  • Cybersecurity sees outsized growth as defense budgets increasingly allocate 10-15% to cyber capabilities; Booz Allen Hamilton and Leidos each [research note] multi-billion-dollar U.S. government IT/cyber contracts
  • Shipbuilding and naval systems benefit from great-power competition: Huntington Ingalls Industries (HII) is the sole builder of U.S. nuclear aircraft carriers and holds a backlog exceeding $48B
  • Semiconductor and electronics firms supplying radiation-hardened and mil-spec components — including Texas Instruments and Mercury Systems (MRCY) — benefit as modern weapons platforms require advanced processing power
  • Space and satellite technology accelerates with defense budgets: Northrop Grumman's space systems division and L3Harris both [research note] classified satellite contracts under the Space Development Agency
  • Advanced materials and propulsion suppliers — including TransDigm Group (TDG), Heico (HEI), and Curtiss-Wright (CW) — benefit as component demand rises across aircraft, missile, and naval programs
  • Allied nation defense spending amplifies demand globally: European NATO members pledging 2%+ GDP targets directly benefit BAE Systems, Leonardo, Rheinmetall, and MBDA joint ventures
  • Intelligence and surveillance (ISR) services represent a growing budget line, with SAIC and Leidos winning multi-year IDIQ contracts worth $5B+ in recent award cycles

Evidence & Analysis

  • The U.S. FY2025 defense budget is $886 billion, representing a 3% increase year-over-year and the largest in nominal dollar terms in U.S. history
  • NATO members collectively spent over $1.3 trillion on defense in 2023; 18 of 31 members met or pledged to meet the 2% GDP target following Russia's Ukraine invasion
  • Global defense spending reached a record $2.2 trillion in 2023 according to SIPRI, a 6.8% real-terms increase — the steepest annual rise since the Cold War
  • The Pentagon's cybersecurity budget request for FY2025 was approximately $14.5 billion, reflecting growing prioritization of cyber and electronic warfare domains
  • Rheinmetall AG (Germany) saw its order backlog grow to €52B by mid-2024 as European rearmament accelerated following NATO commitments
  • The U.S. Space Force budget request for FY2025 was $29.4 billion, supporting satellite communications, missile warning, and space domain awareness contracts

Key Companies

LMT

Lockheed Martin Corporation

Largest U.S. defense contractor by revenue ($67.6B in 2023); primary beneficiary of F-35 program, missile defense, and classified programs

NOC

Northrop Grumman Corporation

Key beneficiary in stealth bombers (B-21 Raider), space systems, and missile defense; sole provider of the B-21 program

RTX

RTX Corporation

Benefits from missile systems (Raytheon), jet engines (Pratt & Whitney), and electronic warfare; strong NATO allied-nation export demand

HII

Huntington Ingalls Industries

Sole builder of U.S. nuclear-powered aircraft carriers; $48B+ backlog driven by Navy shipbuilding expansion

BAH

Booz Allen Hamilton

Top-tier defense IT and cybersecurity contractor; ~97% of revenue from U.S. government, including NSA and DoD cyber programs

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