When President Trump announced his intention to boost U.S. military spending by over 50% to $1.5 trillion, defense stocks surged on hopes of a generational spending cycle. Shares of Northrop Grumman and Lockheed Martin each jumped about 7% on the news, with investors racing to position for what would be the largest military buildup since World War II.

The Scale of the Proposal

To understand why defense investors are excited, consider the math. Current U.S. defense spending runs approximately $900 billion annually. A $1.5 trillion budget would represent a $600 billion increase—roughly equivalent to adding the entire defense budget of China on top of existing American military spending.

Trump has indicated this expansion would be funded by tariff revenues, though the actual funding mechanism remains uncertain. What's clear is the strategic intent: reasserting American military dominance across air, sea, land, space, and cyberspace.

"The magnitude of this proposed increase would reshape the defense industrial base for a generation. Every major contractor would see order books swell."

— Defense industry analyst

Lockheed Martin: The F-35 Engine

Lockheed Martin, the world's largest defense contractor, is positioned as the primary beneficiary of expanded military spending. The company's F-35 fighter jet program—the most expensive weapons system in history—would likely see accelerated production under a $1.5 trillion budget.

Boeing's recent $12.8 billion in defense contract wins to start 2026 underscore the opportunity, but Lockheed's broader portfolio across aircraft, missiles, and space systems gives it the deepest exposure to spending increases.

The company also leads major programs in hypersonic weapons, space-based systems, and missile defense—all areas where the Trump administration has signaled increased investment. For Lockheed shareholders, the budget proposal validates a multi-year growth thesis.

Northrop Grumman: The B-21 Advantage

Northrop Grumman brings unique exposure to strategic programs that would benefit from defense expansion. The B-21 Raider stealth bomber—America's next-generation strategic bomber—is ramping production under Northrop's leadership.

The company's space systems division would benefit from increased investment in satellite constellations and missile warning systems. Its unmanned systems portfolio addresses growing demand for autonomous military capabilities across domains.

Northrop's stock tends to be more sensitive to defense spending changes than diversified contractors, making it a potentially higher-beta play on the Trump budget proposal.

RTX: The Missiles and Munitions Play

RTX (formerly Raytheon Technologies) offers exposure to areas where spending needs are most acute: missiles, munitions, and air defense systems. The company's Patriot missile systems and other air defense capabilities are in high demand globally.

The depletion of U.S. weapons stocks through support for Ukraine has created a replenishment backlog that would take years to address even at current spending levels. A $1.5 trillion budget would accelerate this replenishment while also funding next-generation systems.

RTX's commercial aerospace exposure through Pratt & Whitney engines provides diversification, though defense would dominate the investment thesis in a major spending increase scenario.

The Skeptics' Concerns

Not everyone is convinced the $1.5 trillion budget will materialize. Congressional approval remains uncertain, and even Republicans may balk at the fiscal implications. The tariff funding mechanism is untested and politically fraught.

Defense contractors have seen promised spending increases evaporate before. The Budget Control Act of 2011 imposed sequestration cuts that constrained defense spending for years. Investors who bought defense stocks in anticipation of sustained increases were disappointed.

There's also the question of absorptive capacity. The defense industrial base has contracted significantly since the Cold War. Ramping production to meet a $1.5 trillion budget would require massive workforce expansion, supply chain development, and facility investment—all of which take years to accomplish.

Valuation Considerations

Defense stocks have already moved significantly on the budget news. The question for investors is whether current prices reflect the opportunity or have already captured it:

  • Lockheed Martin: Trading near 52-week highs but at reasonable valuations relative to projected earnings growth
  • Northrop Grumman: Higher beta to defense spending changes but also more sensitive to program-specific risks
  • RTX: Diversified exposure but potentially diluted defense upside from commercial aerospace business

Beyond the Prime Contractors

If the $1.5 trillion budget materializes, benefits would cascade through the defense supply chain. Smaller defense contractors, component suppliers, and specialized technology companies would all see increased demand.

Companies like L3Harris Technologies, General Dynamics, and Huntington Ingalls Industries would participate meaningfully. The naval shipbuilding industrial base, which has been starved for investment, could see particularly significant funding increases.

The Investment Playbook

For investors looking to position for defense spending expansion, several approaches make sense:

  • Diversified exposure: Defense ETFs like ITA or XAR provide broad participation in the sector's upside
  • Prime contractor focus: Lockheed, Northrop, and RTX offer the most direct exposure to major programs
  • Supply chain opportunities: Smaller defense companies may offer higher growth potential with greater risk

The defense sector's 2026 prospects depend heavily on the trajectory of Trump's budget proposal. If the $1.5 trillion vision becomes reality, defense stocks could be entering a golden age. If it proves to be political rhetoric, the recent gains may prove fleeting.

For now, the market is betting on the former—and defense contractors are preparing for windfall.