In September 2014, heads of state gathered in Newport, Wales, and came to a truly historic agreement.

Every NATO member would spend at least 2% of GDP on defense within a decade. The alliance had watched Russia annex Crimea that spring.

The message was clear, the commitment was unanimous.

But then everyone went home and did almost nothing.

For the next eight years, roughly two-thirds of NATO allies spent well below the threshold they had agreed on. Germany, Europe's largest economy, hovered around 1.3% and seemed comfortable there.

The U.S. covered the gap, as it always had.

Defense contractors on both sides of the Atlantic watched their European order books stay thin.

But as tends to happen throughout history, there is a catalyzing event that changed the trajectory violently. February 24, 2022 changed the calculation.

Russia crossed into Ukraine with a full invasion force and within months, allies that had missed the 2% target for years, were suddenly pushing for 3%. The Hague Summit in June 2025 formalized NATO's 3.5% GDP commitment for core defense by 2035, with an another 1.5% for defense-related infrastructure.

Global military expenditure reached $2.63 trillion in 2025, up from $2.48 trillion the year before.

The 2026 U.S. defense budget proposal stands at a record $1.01 trillion.

Now add an active U.S. military campaign in Iran launched in early March 2026, which has accelerated weapons procurement and consumption in ways that will take years to replenish. Companies with backlogs measured in years are in the right place at the right time.

Lockheed Martin (LMT) 

Lockheed is the world's largest defense contractor and the single company most directly linked to what governments are buying right now.

Its $194 billion backlog represents 2.5 times annual revenue, and it continues to grow.

For 2026, management guided for $80 billion in sales, EPS of $29.35 to $30.25, and free cash flow of $6.5 to $6.8 billion.

The F-35 remains the backbone of allied air forces globally.

The Patriot missile system and THAAD interceptors are in direct wartime demand following the Iran conflict.

The quarterly dividend of $3.45 per share represents roughly a 2.1% yield at current prices which is rare income from a company growing this fast.

What to watch: F-35 production rate increases and emergency procurement orders tied to the Iran conflict.

RTX Corporation (RTX)  

RTX is the defense and aerospace hybrid that benefits from two simultaneous upcycles.

Its Raytheon division manufactures the Patriot systems, Stinger missiles, and Tomahawk cruise missiles being consumed in the Middle East.

Its Collins and Pratt & Whitney divisions supply the commercial aerospace market straining to keep the global fleet aloft.

Management guided 2026 revenue of $92 to $93 billion, adjusted EPS of $6.60 to $6.80, and free cash flow of $8.25 to $8.75 billion.

Morgan Stanley rates it overweight, with a $235 price target.

Two earnings drivers running in parallel is unusual for any company this size.

What to watch: Patriot and THAAD backlog expansion after the Iran strikes; Pratt & Whitney margin recovery cadence.

Northrop Grumman (NOC)  

Northrop builds the things that governments almost never cancel once they start.

The B-21 Raider stealth bomber is the first new American bomber in 30 years, and Northrop is its only supplier.

The company also sits at the center of the Golden Dome missile defense project — a next-generation interceptor architecture analysts expect could eventually represent tens of billions in awards.

Q4 adjusted EPS came in at $7.23 last quarter, beating the $7 consensus by 3.3%.

Management expects 2026 revenue growth to exceed the initial 4.5% guidance.

What to watch: Golden Dome contract structure and timeline announcements expected in mid-2026; B-21 production rate milestone.

General Dynamics (GD)  

General Dynamics sits across three durable revenue streams that rarely decline at once - which are nuclear submarines, land combat vehicles, and Gulfstream business jets.

The Virginia-class submarine program is one of the most secure contracts in the U.S. defense budget as nuclear attack submarines simply cannot be built anywhere else, and the Trump maritime action plan proposes accelerating the build rate.

The Abrams tank and Stryker vehicle programs benefit from European allies rebuilding land forces.

The consensus analyst price target is $393, with the street high at $444.

The dividend yield of 1.72% has never been cut in the company's modern history.

What to watch: Submarine production rate announcements and Gulfstream G800 delivery cadence through 2026.

L3Harris Technologies (LHX) 

L3Harris is the ISR specialist in this group.

They specialize in intelligence, surveillance, and reconnaissance systems spanning communications, sensors, avionics, and electronic warfare.

It is less visible than the prime contractors but deeply embedded in how modern wars are actually fought.

Full-year 2025 revenue came in at $21.9 billion, with a book-to-bill ratio of 1.3 times and adjusted EPS growth of 11% to $10.73.

The ISR and electronic warfare category is one of the fastest-growing segments in allied defense procurement, as AI-enabled situational awareness moves from research budgets into operational contracts.

What to watch: Classified contract wins and electronic warfare awards from European allies accelerating in 2026.

Full List

Kratos Defense & Security Solutions (KTOS)

Kratos builds affordable, production-ready unmanned aerial systems, including the Valkyrie jet-powered drone now flying as a Collaborative Combat Aircraft alongside Northrop Grumman's crewed fighters.

Full-year 2025 revenue was $1.35 billion, with a bid-and-proposal pipeline of $13.7 billion and 2026 guidance of $1.595 to $1.675 billion, implying 18% to 24% growth.

It is the only pure-play drone contractor on this list.

The asymmetry between current revenue and the pipeline is the core thesis here.

BWX Technologies (BWXT)

BWXT is the only U.S. company that designs and manufactures nuclear propulsion systems for the Navy. In practice, it is a structural monopoly on every submarine and aircraft carrier reactor the Pentagon operates.

Backlog ended 2025 at $7.3 billion, up 50% year-over-year, driven by long-duration naval and commercial nuclear power awards.

Management guided 2026 non-GAAP EPS of $4.55 to $4.70 and free cash flow of $305 to $320 million.

Quiet, durable, and irreplaceable.

Huntington Ingalls Industries (HII)

HII is America's largest military shipbuilder and the only company capable of constructing nuclear-powered aircraft carriers.

Q4 2025 revenue of $3.48 billion came in 15.7% above the prior year, with EPS of $4.04 topping the $3.72 consensus.

The Trump maritime action plan proposes accelerating naval construction — all of which runs through HII's yards.

The consensus 2026 EPS estimate is $13.99, and the P/E of 26.5x reflects growing confidence that the backlog is real and durable.

Leidos Holdings (LDOS)

Leidos runs the IT and systems integration layer behind U.S. defense and intelligence operations.

This includes autonomous ships, AI battlefield decision tools, cybersecurity platforms, and classified analytics for the intelligence community.

DOGE-related contract scrutiny is a genuine near-term risk. The counter-argument is that Leidos specializes in cost reduction and efficiency, which is exactly what a government efficiency mandate demands from its contractors.

Revenue and margin durability are the metrics to watch.

Carpenter Technology (CRS)

Carpenter makes the specialty alloys that go inside jet engines, missile bodies, and submarine components.

Defense and aerospace now account for roughly 60% of revenue, and supply chains for these materials remain structurally constrained. ROCE of 19.5% over the trailing twelve months reflects genuine pricing power.

It is the picks-and-shovels name in a sector where everyone is focused on platforms.

The rearmament cycle that began in February 2022 is a multi-decade budget realignment backed by governments that spent years underfunding their militaries and are now catching up under genuine threat.

The ten names on this list are are companies with confirmed backlogs, irreplaceable capabilities, and contracts that run for years regardless of what the market does next quarter.

Some, like BWXT and CRS, barely register in most investor conversations despite sitting at the center of things that cannot be built anywhere else.

That's usually where the better entries are.

For investors who want exposure to one of the clearest structural spending stories of the next decade, this list is where I'd start.

The Earnout Investor provides analysis and research but DOES NOT provide individual financial advice. Jamie Dejter may have a position in some of the stocks mentioned. All content is for informational purposes only. The Earnout Investor is not a registered investment, legal, or tax advisor, or a broker/dealer. Trading any asset involves risk and could result in significant capital losses. Please, do your own research before acquiring stocks.