From your iPhone to your jeans, U.S. businesses have been sending jobs overseas for decades.
Why? To reduce costs. Lower wages in other countries helped businesses increase profits.
But it wasn't just phones being outsourced - microelectronics and weapons were also made overseas.
The problem: Outsourcing led to less access to supply chains, leaving U.S. defense systems exposed.
Three major events changed everything:
- 2020: The pandemic shut down supply chains. The U.S. military couldn't get critical parts.
- 2022: The U.S. sent defense supplies to help Ukraine fight Russia, sometimes giving away weapons faster than they could be replaced.
- 2025: Rising tensions with China over rare earth minerals put national security in question.
The bottom line: We can't defend ourselves if we can't make our own stuff.
Now, the U.S. military is rebuilding the defense industry at home.
Multi-year contracts with guaranteed payments are landing at companies making critical parts, creating potential opportunities for investors to profit.
Let’s explain why defense contracts are coming home, the opportunities being created, and everything else investors need to know.
BTW: Our Market Analysts covered this shift in-depth months ago.
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The Government Shift: Defense Contracts Are Coming Home
Big legislation like the Inflation Reduction Act (IRA), the CHIPS Act, and the Infrastructure Investment and Jobs Act (IIJA) included provisions to bring defense manufacturing back to America.
Repair facilities are now being reclassified from "industrial companies" to "critical infrastructure."
And checks are being written.
Multi-year contracts with guaranteed payments - some lasting nearly a decade - are landing at companies making:
- Nuclear submarine parts.
- Military electronics.
- Repair and maintenance services.
This isn't political. It's part of a long-standing national security plan.
Some contracts survived from the Biden administration into the Trump administration as well.
That’s because this shift isn’t about politics - it's about bolstering our defense capabilities from the homeland.
The Trump administration has signed even more deals as critical infrastructure becomes a bigger focus.
These defense policies are leading to hundreds of billions of dollars in planned spending.
Most of that cash is going to companies - because the U.S. military doesn't really build its own weapons, it hires companies to do it instead.
Defense Stock Categories: Which Sectors Benefit Most?
The reindustrialization shift is creating opportunities in three specific areas:
| Sector | What They Do | Why It Matters | Key Player |
| Nuclear Submarines | Build reactor components, heat exchangers, pressure vessels | Only one U.S. company makes these mission-critical parts | BWX Technologies (BWXT) |
| Defense Electronics | Create computing systems for missile defense, drones, radar | Modern warfare requires purpose-built combat electronics | Mercury Systems (MRCY) |
| Military Repairs | Manufacture replacement parts, provide rapid repair services | Weapons stockpiles depleted faster than they can be replaced | HEICO Corporation (HEI) |
Each sector addresses a different potential opportunity for investors to profit.
Will Defense Stocks Continue to Rise?
Here's what the data shows:
Defense companies with government contracts are seeing their backlogs grow, not shrink.
BWX Technologies signed a $2.6 billion contract with the U.S. Navy in July 2025 for Columbia-class submarine components.
That single contract extended their work backlog to 8 years - giving them nearly a decade of guaranteed revenue.
The company's shares are up 85% from January 1, 2025 through October 20, 2025. Since 2021, BWX is up over 260%.
Why does this matter?
Because the U.S. is legally required to maintain combat readiness. Defense funding for critical infrastructure cannot be cut the same way other government spending can.
These submarines are considered critical infrastructure for defense readiness.
Gavin Brown of Dynamic Predictive Engineering sat down with our analysts to give up a fresh perspective on this shift:
"Today's weapon systems do not just provide specific superiority in the battlefield, they are integrated into an ecosystem of strategic capabilities, combined with other technologies that offer an unassailable advantage to the U.S. military."
Why submarines? They're designed to survive the apocalypse.
If satellites, military bases, or communication systems get wiped out, nuclear submarines need to keep working as America's last line of defense.
That means creating parts for these submarines is extremely vital. BWX also is the only maker of these critical parts, so the military can’t shop around.
Defense Electronics: Why Computing Matters in Modern Warfare
For decades, the military took a shortcut. They bought commercial computers and electronics, then modified them for defense use.
Regular laptops and standard processors were bought and reprogrammed.
That doesn't work anymore.
The U.S. saw this in real time when the Russia-Ukraine conflict heated up in 2022 - the largest military conflict in Europe since World War 2.
Russia jammed GPS signals. Ukraine hacked Russian communications. Both sides used drones controlled by sophisticated electronics.
Gavin Brown explains the shift:
"As we develop more advanced integrated platforms that can simultaneously combine space, air, land and sea assets, the battlefield advantages work to provide a latency-free offensive and defensive winning capability in realtime."
Countries including the U.S. now need computing built from scratch, purpose-designed for combat, and able to resist jamming, hacking, and electronic warfare.
The military calls this C4ISR: Command, Control, Communications, Intelligence, Surveillance, and Reconnaissance.
In plain English: It's the technology that helps commanders see the battlefield, communicate with troops, and make decisions faster than the enemy.
Mercury Systems: Making the Electronics That Power Weapons
Mercury Systems (MRCY) makes the computing brains that go inside defense systems. Their hardware powers:
- Missile defense systems
- Radar installations
- Electronic warfare equipment
- Military drones
- Communication networks
Think of it this way: Companies like RTX, L3Harris, and Northrop Grumman make weapons. Mercury makes the electronics that make those weapon systems work.
90% of Mercury's customers are the Department of Defense (DoD) or companies that sell to the DoD. These are long-term contracts that keep growing.
Military Repairs: The Overlooked Defense Opportunity
Whether it's a tank or a computer, defense systems have one ultimate reality: They break.
Fighter jets need replacement parts. Navy ships need repairs. Helicopters need maintenance. Drones crash and need rebuilding.
This work is called "sustainment" - and in times of peace, it's not usually a priority.
Since 2022, the U.S. has sent thousands of missiles, artillery shells, and weapons systems to help Ukraine fight Russia.
This depleted weapons stockpiles faster than American factories could replenish them.
Critical systems sat broken because replacement components weren't available.
At the same time, rising tensions with China created supply chain problems since many parts for existing weapons come from Asia.
The concern: What happens if that supply gets cut off in a conflict?
Why Repair Work Is Now Critical Infrastructure
The government now includes repair work and "sustainment" as part of "readiness."
William Cuervo, VP of Sales at defense manufacturing company 3YOURMIND, explains the modernization:
"MRO is not just about improving repair speed; it's about transforming sustainment into a data-driven, distributed capability."
He continues:
"When we connect advanced manufacturing, digital part identification, and secure digital threads, we enable both the organic industrial base and commercial suppliers to act as one adaptive ecosystem."
Many repair depots and parts manufacturers are now labeled as critical infrastructure.
These facilities get military protection and special funding because they're essential to national security.
Here's what matters for investors: The military is legally required to maintain combat readiness. They have to fund repairs. This money cannot be cut.
Cuervo summarizes the battlefield advantage:
"The future fight won't just be won by who has more equipment - it'll be won by who can repair, replace, and redeploy faster."
HEICO Corporation (HEI) specializes in this work. The company manufactures approved replacement parts for military systems and provides rapid replacement capability in combat zones.
They service nearly everything in the U.S. military inventory: F-35 fighter jets, F-18 jets, C-130 transport planes, Aegis destroyers, and Columbia-class submarines.
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Should You Hold Defense Stocks Long-Term?
The answer depends on understanding contract timelines, your investment goals, and risk tolerance.
Defense companies with government contracts operate differently than typical stocks. Here's why:
Multi-year contract backlogs create predictable revenue. These companies signed contracts with guaranteed payments stretching years into the future.
Government spending on critical infrastructure cannot be easily cut. Unlike discretionary programs, defense readiness is legally required.
Congress can delay funding, but they can't eliminate it.
The bipartisan nature of these contracts matters. These deals survived from one administration to another.
Both parties agree that domestic defense production is a national security priority.
However, holding defense stocks long-term requires accepting specific risks:
- Budget fights in Congress can delay (not cancel) contract funding.
- Individual companies face operational risks specific to their sector.
- Political priorities can shift, affecting which defense categories get emphasized.
For investors considering long-term holds, the question isn't "Will defense spending continue?" It's "Which defense categories will see the most consistent growth?"
Based on current trends, companies making mission-critical components that cannot be easily replaced or outsourced appear to have the strongest long-term potential according to our analysts.
Are Defence Stocks a Good Buy Right Now?
Here's what you need to know before considering defense stocks in 2026:
What's Working in Defense
1. Tier-2 suppliers with monopoly positions BWX Technologies is the only U.S. company making nuclear reactor components for submarines.
That's a monopoly backed by national security priorities.
2. Repair and sustainment providers As weapons stockpiles get depleted faster than they can be replaced, companies that keep existing systems running become more valuable.
What the Experts Say
Gavin Brown of Dynamic Predictive Engineering points to integrated systems as the future of defense advantage.
It's not just about having better weapons - it's about having better networks that connect all systems together.
William Cuervo emphasizes that repair speed will determine future battlefield success. The military that can fix and redeploy equipment fastest wins.
Defense ETFs: The Diversified Approach
Not ready to pick individual defense stocks? There are some potential ETFs that investors may want to consider
Three major defense ETFs provide broad exposure:
| ETF | Ticker | Focus | Best For |
| iShares U.S. Aerospace & Defense ETF | ITA | Wide coverage of U.S. defense contractors and aerospace | Broad defense exposure |
| Invesco Aerospace & Defense ETF | PPA | Companies developing and supporting U.S. defense systems | Active defense sector participation |
| SPDR S&P Aerospace & Defense ETF | XAR | Equal-weight exposure across aerospace and defense | Avoiding over-concentration in mega-caps |
For investors who prefer a passive approach, these funds may be worth watching as the defense reindustrialization shift progresses.
Risks: What Could Go Wrong With Defense Stocks
Government contracts can change, congress can delay funding and new administrations can shift priorities.
Defense companies are trading higher right now based on existing contract backlogs. If those contracts get reduced or delayed, stock prices may fall.
Political risk: Defense priorities can shift between administrations. What's considered "critical infrastructure" today might get reclassified tomorrow.
Budget risk: Even bipartisan support doesn't guarantee smooth funding. Congressional gridlock can delay contract payments, hurting company cash flow.
Execution risk: Defense contracts often involve complex technology and strict timelines. Companies that miss milestones can face penalties or contract cancellations.
These aren't new risks - defense companies have dealt with government budget cycles for decades. But investors should understand that volatility comes with the territory.
Frequently Asked Questions
Are defence stocks a good buy?
Defense stocks with long-term government contracts and mission-critical products may offer opportunities, but they come with specific risks.
Companies like BWX Technologies have 8-year contract backlogs, creating predictable revenue streams. However, government budget delays and political shifts can affect timing and returns.
Will defence stocks continue to rise?
Defense stocks tied to U.S. reindustrialization efforts have structural tailwinds - multi-year contracts, bipartisan support, and mandatory readiness funding.
However, "rise" isn't guaranteed. Stock prices depend on execution, contract renewals, and broader market conditions.
What's the best defense stock to buy right now?
There is no single "best" defense stock. BWX Technologies dominates nuclear submarine components with monopoly positioning.
Mercury Systems benefits from electronics demand.
HEICO profits from repair needs. The right choice depends on your risk tolerance and investment timeline.
For diversification, there’s also defense ETFs (ITA, PPA, XAR) that give investors exposure to this shift.
But always do your own due diligence and research before investing.
Should I hold defence stocks?
Holding defense stocks long-term might make sense if you understand contract timelines.
If you can handle government budget volatility and have a multi-year timeline, these stocks may be an opportunity for some investors.
Will defense stocks rise in 2026?
Defense stocks in 2026 will likely respond to contract announcements, National Defense Authorization Act funding, and backlog growth at key companies.
So if this shift continues to grow, there is a strong chance that these stocks could rise
However, there’s never a guarantee that these stocks will rise and the risk is that they could even fall in 2026 if this market shift reverses.
Watch Q4 2025 and Q1 2026 for contract news that could drive growth.
The Bottom Line: Defense Stocks in 2026 and Beyond
For decades, America sent defense manufacturing overseas to reduce costs.
Now, reindustrialization is beginning.
Multi-year contracts worth billions are creating opportunities in three specific areas:
- Nuclear submarine components
- Defense electronics and computing systems
- Military repair and sustainment services
What to watch in 2026:
- Contract announcements in Q4 2025 and Q1 2026.
- The National Defense Authorization Act funding for 2026.
- Backlog growth at companies with existing contracts.
As demand and spending grow, profits could follow. That creates potential opportunities for investors willing to understand the timeline and risks.
Want the complete analysis with more opportunities and detailed research? Our Market Briefs Pro report covers additional defense opportunities, company financials, and risk analysis.
