By Monetary Elite 
Hey there, bargain hunter. Defense spending isn’t a trend right now. It’s a structural shift. And the numbers are getting harder to ignore.
The Trump administration proposed what would be the largest defense budget in U.S. history — total FY2027 spending approaching $1.5 trillion, following an FY2026 request already above $1 trillion. Across the Atlantic, NATO members are now committing up to 5% of GDP to defense, a historic jump from the prior 2% benchmark. Germany, the UK, and France are running expanded multi-year rearmament plans. Canada pledged $30 billion in additional defense spending to close its NATO gap. The money is real. The orders are flowing.
The primes are priced for good news
Lockheed Martin (LMT), RTX (RTX), Northrop Grumman (NOC), and General Dynamics (GD) have captured most of the narrative — and most of the multiple expansion. The four primes currently trade at roughly 22 to 25 times forward earnings, a premium to the S&P 500 and well above their own 10-year averages. Lockheed’s total backlog sits above $160 billion. RTX secured a $1.7 billion U.S. Army radar contract for its LTAMDS system. NOC’s 2026 EPS consensus implies roughly 34% year-over-year growth. These are not broken businesses. But the easy money has likely already been made at the large-cap level.
Slight tangent, but it matters: fixed-price contract risk is the silent killer in defense. Boeing’s KC-46 charges are the cautionary tale every defense analyst has memorized. LMT, NOC, and RTX all carry fixed-price exposure that could surprise to the downside if program scope creeps further.
Where the cheaper opportunity might actually live
The more interesting setup – at least for value-conscious investors – is in the drone and unmanned systems layer. The proposed defense budget allocates over $74 billion to drones alone, marking a record investment in unmanned systems. Ukraine proved that affordable unmanned platforms can do what previously required far more expensive hardware. That doctrine shift is now baked into procurement strategy.
- Kratos Defense (KTOS): 2025 revenue of $1.35 billion, up 18.5%. FY2026 guidance of $1.595–$1.675 billion. Its XQ-58A Valkyrie – a stealthy, low-cost collaborative combat aircraft designed to fly alongside F-35s – has secured Marine Corps production status. Book-to-bill ratio held at 1.3x in Q4 2025. Valuation is stretched on GAAP earnings, but backlog visibility is there.
- AeroVironment (AVAV): Holds a five-year, $990 million IDIQ contract for Switchblade systems with the U.S. Army. Production of the Switchblade 600 has ramped from 40 to 240 systems per month, with a new facility targeting 1,200 per month. Post-BlueHalo acquisition, gross margins compressed from 39% to 22% — that’s the thing to watch before sizing in.
The risks are real. Procurement delays, continuing resolutions, and contract timing slippage can swing the smaller names 20% on a single announcement. This isn’t a set-and-forget category.
But if the thesis is that the world is rearming for a prolonged cycle — and the budget numbers suggest exactly that — the drone and unmanned systems layer is where the spending growth is most asymmetric relative to where valuations currently sit.
The primes are safe. The drone names are interesting. That distinction matters when you’re trying to buy value in a defense bull market that everyone already knows about.