Trump Calls for $1.5 Trillion Defense Budget in 2027: Defense Stocks Surge on 'Dream Military' Vision

President Donald Trump dropped a fiscal bombshell on Wednesday, calling for a staggering $1.5 trillion defense budget for fiscal year 2027—a 66% increase from the $901 billion currently approved for 2026. The proposal, which Trump said would build a "Dream Military," sent defense stocks surging as investors rushed to position for what could be the largest military spending expansion in American history.

Shares of major defense contractors exploded higher on Thursday morning. Northrop Grumman and Lockheed Martin both jumped approximately 7% before paring gains, while RTX advanced 4% and General Dynamics climbed 5%. The iShares U.S. Aerospace & Defense ETF (ITA) posted its largest single-day gain since 2020.

The 'Dream Military' Proposal

In a Truth Social post that caught even seasoned defense analysts off guard, Trump outlined his vision for unprecedented military investment. The president framed the proposal as essential for national security in what he characterized as "very troubled and dangerous times."

"After the long and difficult negotiations with Senators, Congressmen, Secretaries, and other Political Representatives, I have determined that, for the Good of our Country, especially in these very troubled and dangerous times, our Military Budget for the year 2027 should not be $1 Trillion Dollars, rather $1.5 Trillion Dollars."

— President Donald Trump, via Truth Social

Trump added that the massive spending increase "will allow us to build the 'Dream Military' that we have long been entitled to and, more importantly, that will keep us SAFE and SECURE, regardless of foe."

How Would It Be Funded?

The president claimed the unprecedented jump would be financed by tariff revenues, pointing to the significant increase in customs collections over the past year. According to the Bipartisan Policy Center, the U.S. government collected gross revenues of $288.5 billion from tariffs and other excise taxes in 2025, up dramatically from $98.3 billion in 2024.

However, fiscal analysts quickly raised concerns about the math. The Committee for a Responsible Federal Budget calculated that a $1.5 trillion military budget would add approximately $5.8 trillion to the national debt over the next decade—far exceeding projected tariff revenues.

Key fiscal considerations:

• Current defense spending: $901 billion approved for FY2026
• Proposed increase: $599 billion additional annually
• 10-year debt impact: Approximately $5.8 trillion in new borrowing
• 2025 tariff revenues: $288.5 billion total
• Funding gap: Hundreds of billions in shortfall annually

Defense Contractor Implications

For defense contractors, the proposal represents a potentially transformative opportunity—but also comes with new demands. Alongside the budget announcement, Trump issued an executive order calling on the Pentagon to review contractor performance and ensure future contracts prohibit stock buybacks during periods of underperformance.

The president specifically called out Raytheon, one of the largest U.S. defense contractors, threatening to cut off Pentagon purchases if the company did not end stock buybacks and invest more profits into expanding weapons manufacturing capacity.

This carrot-and-stick approach suggests that while defense spending may increase dramatically, contractors will face intensified scrutiny over how they deploy capital. Companies that have prioritized shareholder returns over production capacity may need to recalibrate their strategies.

Market Reaction and Analysis

Wall Street analysts scrambled to update their models following the announcement. Several firms raised price targets on major defense contractors, citing the potential for sustained double-digit revenue growth if the proposal advances through Congress.

However, skeptics noted significant hurdles remain. A $1.5 trillion defense budget would require Congressional approval, and even with Republican majorities in both chambers, the sheer magnitude of the increase may face resistance from fiscal conservatives concerned about deficit implications.

The proposal also arrives amid ongoing debate about the One Big Beautiful Bill Act (OBBBA), which already appropriated $175 billion in additional defense spending. Some analysts question whether the Pentagon could effectively absorb such a massive funding increase without waste or misallocation.

Geopolitical Context

Trump's defense spending push comes against a backdrop of heightened global tensions. The recent U.S. military operation in Venezuela, ongoing concerns about Chinese military modernization, and renewed focus on Arctic security following discussions about Greenland have all contributed to bipartisan support for increased defense investment.

European allies have also been pressured to increase their own defense spending, with Trump administration officials suggesting NATO members should target 5% of GDP for military budgets—far above current levels. A dramatic U.S. spending increase could reinforce pressure on allies while simultaneously expanding American defense industrial capacity.

Investment Implications

For investors, the proposal creates both opportunity and uncertainty. Defense stocks have historically outperformed during periods of rising military budgets, and the magnitude of Trump's proposal—if realized—could support years of elevated growth.

Key beneficiaries likely include:

• Lockheed Martin: F-35 fighter jets and missile defense systems
• Northrop Grumman: B-21 bomber program and space systems
• General Dynamics: Nuclear submarines and combat vehicles
• RTX (Raytheon): Missiles and air defense, though facing buyback scrutiny
• L3Harris Technologies: Communications and electronic warfare

However, investors should recognize that the path from proposal to appropriation is long and uncertain. Congressional negotiations, budget reconciliation procedures, and competing spending priorities could all reshape the final outcome significantly.

What Comes Next

The administration is expected to submit a formal budget proposal in the coming weeks, which will provide more detail on how the $1.5 trillion figure would be allocated across services and programs. Congressional hearings will follow, with defense committee leaders already signaling both enthusiasm and concern.

For now, the market has spoken with its vote of confidence in defense stocks. Whether that confidence proves justified will depend on the complex interplay of fiscal realities, political dynamics, and global security developments in the months ahead.