The defense sector is having its best month since Russia invaded Ukraine. Since the Strait of Hormuz closure on February 28, the iShares U.S. Aerospace & Defense ETF (ITA) has surged roughly 14%. Individual names have done even better — Palantir is up over 20%, L3Harris has gained 18%, and the primes are all posting double-digit advances.
The question every investor is asking: is this the start of a sustained defense supercycle, or are you buying the top of a geopolitical fear trade that evaporates the moment diplomats shake hands? The answer, as usual, is more nuanced than either extreme suggests.
Here are the seven defense stocks driving the rally, their fundamental cases, and an honest assessment of whether current prices still offer value.
1. Lockheed Martin (LMT) — The Prime Contractor
Lockheed Martin is the world's largest defense contractor by revenue, and the Iran conflict directly benefits their core programs. The F-35 program (which generates roughly $15 billion annually), missile defense systems (THAAD, PAC-3 interceptors), and precision-guided munitions are all seeing accelerated demand.
The stock is up roughly 12% since the crisis began, trading near all-time highs. At current levels, LMT trades at approximately 18x forward earnings with a 2.5% dividend yield. That's not cheap for a defense prime, which historically trades at 15-17x, but the earnings estimates are being revised upward as analysts incorporate supplemental defense spending. The Pentagon is expected to request an emergency supplemental appropriation of $25-$40 billion to replenish munitions stocks and fund operations in the Persian Gulf.
The bull case: Defense budgets ratchet up but rarely ratchet down. Even if the Iran conflict resolves tomorrow, the U.S. military's munitions stockpiles are depleted and need replenishment. That's a multi-year procurement cycle that benefits LMT regardless of the geopolitical outcome. The stock pullback you might be waiting for may never come — and if it does, it'll be shallow.
The risk: LMT's revenue growth is constrained by production capacity, not demand. They can't ramp F-35 production overnight. Revenue growth will be steady (mid-single-digits) rather than explosive. If you're looking for a 50% move, this isn't the name — it's a compounder, not a rocket ship.
2. RTX Corporation (RTX) — Missiles and Engines
RTX (formerly Raytheon Technologies) is the most direct beneficiary of the Iran conflict because of its missile portfolio. Patriot missile batteries, Standard Missiles for Navy Aegis destroyers, and AIM-120 AMRAAM air-to-air missiles are all being consumed at elevated rates. The Pratt & Whitney engine division also benefits from increased military flight operations.
RTX has gained roughly 15% since late February. At approximately 22x forward earnings, it's trading at a premium to its historical range. But there's a structural argument that the premium is justified: missile replenishment is a multi-year, multi-billion-dollar program, and RTX is effectively a monopoly supplier for several critical systems. When the only company that can make Patriot interceptors is RTX, pricing power is substantial.
Entry point: If you don't own RTX, wait for a 5-7% pullback from current levels. The stock tends to gap up on news events and then consolidate. That consolidation is your window. If you already own it, hold — the fundamental thesis has only gotten stronger.
3. Northrop Grumman (NOC) — Stealth and Nuclear
Northrop Grumman builds the B-21 Raider stealth bomber, operates key components of the nuclear triad modernization program, and is a leader in space-based defense systems. The Iran conflict has less direct near-term impact on Northrop than on Lockheed or RTX — you're not dropping B-21s on Iranian fast-attack boats. But the broader defense spending environment is enormously positive for Northrop's long-duration programs.
Northrop is up roughly 10% since the crisis and trades at about 19x forward earnings. The B-21 program alone represents decades of guaranteed revenue. The nuclear modernization program (Sentinel ICBM) adds another layer of long-duration backlog. This is the most "set it and forget it" name in the defense sector — buy it, reinvest the dividends, and check back in five years.
4. General Dynamics (GD) — Submarines and Gulfstreams
General Dynamics has a unique dual exposure: defense (combat vehicles, nuclear submarines, IT services) and commercial aerospace (Gulfstream business jets). The submarine program at Electric Boat is seeing accelerated demand as the Navy ramps Virginia-class and Columbia-class production. Submarine procurement timelines are measured in years, making this a durable revenue stream.
At roughly 17x forward earnings, GD is the cheapest of the primes on a valuation basis. The Gulfstream business provides a natural hedge — if defense spending eventually moderates, business jet demand (driven by corporate profitability and wealth creation) can pick up the slack. GD is the most diversified play in this group.
5. L3Harris Technologies (LHX) — Communications and ISR
L3Harris specializes in communications, electronic warfare, and intelligence/surveillance/reconnaissance (ISR) systems. In a conflict where the U.S. Navy is operating in contested waters with an active electronic warfare threat from Iranian systems, L3Harris's products are mission-critical.
The stock has surged roughly 18% since the crisis — one of the best performers in the group. At approximately 21x forward earnings, it's no longer cheap. But the company's position in the growing electronic warfare and space surveillance markets gives it a growth trajectory that justifies a premium multiple. The Pentagon's shift toward distributed operations and resilient communications — accelerated by the Iran conflict — plays directly into L3Harris's capabilities.
6. Palantir Technologies (PLTR) — AI-Powered Defense
Palantir is the most controversial name on this list. It's not a traditional defense contractor — it's a data analytics and AI company that derives roughly 55% of its revenue from government contracts. But Palantir's Gotham platform is deeply embedded in the U.S. intelligence community, and its Maven Smart System is being used for real-time battlefield intelligence processing in the Persian Gulf.
The stock is up over 20% since the crisis and trades at a nosebleed valuation — roughly 60x forward revenue. By any traditional valuation metric, Palantir is absurdly expensive. The bull case rests on the argument that Palantir is becoming the operating system for Western military AI, and that the total addressable market for AI-powered defense is in the hundreds of billions. If you believe that, the current market cap is a rounding error on the eventual opportunity. If you don't, Palantir is a meme stock with government contracts.
My take: Palantir is a position-sizing problem, not a buy/don't-buy problem. Own it in a size you can stomach losing 40% on without losing sleep. The optionality is real. The valuation is also real.
7. Booz Allen Hamilton (BAH) — The Consulting Play
Booz Allen Hamilton is the largest provider of management consulting and IT services to the U.S. government. When defense budgets expand, Booz Allen benefits across every contract vehicle — strategy consulting, cyber operations, data analytics, and program management. They're the picks-and-shovels play of the defense sector.
At roughly 24x forward earnings, BAH isn't cheap, but its revenue visibility is exceptional. Government contracts provide multi-year revenue certainty that most companies can only dream of. The stock has gained roughly 11% since the crisis and offers a more defensive (pun intended) risk profile than the hardware primes — less binary geopolitical exposure, more steady consulting revenue growth.
🔒 Protect Your Digital Life: NordVPN
If you're trading defense stocks or managing a brokerage account during a period of elevated geopolitical risk, secure your connection. State-sponsored cyber threats target individual investors alongside institutional targets.
The Verdict: Buy, Hold, or Fade?
The defense rally has legs, but the easy money has been made. If you bought these names before or during the first week of the crisis, you're sitting on meaningful gains. If you're looking to initiate positions now, selectivity matters. GD at 17x earnings is the best value in the group. LMT and NOC are quality compounders at reasonable prices. RTX and LHX are fairly valued — wait for pullbacks. Palantir is a high-conviction, high-risk bet on AI-powered defense. BAH is the steady hand.
The broader point: defense spending is structurally higher regardless of how the Iran conflict resolves. The U.S. defense budget was already on an upward trajectory before Hormuz. This crisis accelerates the timeline and adds supplemental appropriations on top. The defense sector isn't a trade — it's a thesis. And the thesis just got materially stronger.
