Next-Gen Defense: 3 Stocks Riding the New Global Arms Race

Key Points

• Defense spending is ramping up worldwide amid multiple massive and ongoing conflicts.
• Defense firms like L3Harris, Kratos, and TransDigm could all benefit from increased military spending.
• L3Harris and Kratos reported strong earnings recently, while TransDigm's lackluster report may present a chance to buy the dip.

Global military expenditure climbed by nearly 10% between 2023 and 2024, reaching $2.7 trillion last year as spending accelerated faster since the Cold War. Ongoing conflicts throughout Eastern Europe and the Middle East threaten to continue driving a worldwide race toward defense growth into the foreseeable future.

While the implications of this increased spending on defense may be catastrophic on a geopolitical level, the increased military budgets of countries around the globe could benefit companies in the defense industry. The firms below are among the top defense names likely to see a boost from continued increases in military spending.

L3Harris Is Growing and Advancing Technology at a Rapid Pace

L3Harris Technologies Inc. NYSE: LHX is a defense industry giant, with a market cap above $50 billion. Nonetheless, it has engaged in a rapid-fire expansion of its technological efforts this year. The company's recently announced partnership with electric vertical takeoff and landing firm (eVTOL) Joby Aviation Inc. NYSE: JOBY opens a new avenue in the fast-growing eVTOL space and marks a crucial shift toward militarization for this technology.

In mid-August, L3Harris' experimental Navigation Technology Satellite-3—the first defense-focused experimental satellite to launch in almost half a century—was successfully launched.

These announcements arrived shortly after L3Harris posted an all-around earnings win in late July for its second quarter of 2025. The firm handily topped analyst predictions for earnings and revenue for the quarter, driven by the company's efforts to develop tools for the Trump administration's "Golden Dome" project and other initiatives.

The firm's integration with Aerojet Rocketdyne, now complete, has already yielded impressive results; production and deliveries have doubled, leading to record quarterly revenue for this business.

Investors have already priced in substantial optimism surrounding LHX shares, which are up more than 30% so far in 2025. Still, analysts remain bullish, as 13 out of 18 continue to rate LHX a Buy, and earnings are expected to rise by more than 12% in the coming year.

Major Contracts and Pipeline Help Drive Kratos' Massive Rally

A maker of equipment and technology for use in manned and unmanned military systems, Kratos Defense & Security Solutions Inc. NASDAQ: KTOS is also coming off a successful mid-year earnings report. Not only did revenue grow by 17% year-over-year (YOY), leading to a top-line beat of more than $45 million, but earnings also came in above analyst expectations.

The success of the company's Valkyrie tactical drone in both the United States and international applications, driving quarter performance, has prompted Kratos to increase production.

Kratos is impressing with its contracts, especially with a large pipeline of about $13 billion. The sole-sourced program called Poseidon is a major success, awarding an estimated $750 million contract with production expected to increase in the next two years. This should boost Kratos' performance in the near future and has helped the company raise its full-year guidance.

This firm is a compelling buy for many reasons, not the least because 14 out of 16 analysts support it. However, a rally of more than 160% year-to-date (YTD) has sent Kratos' value metrics through the ceiling—the company has a P/E ratio of nearly 688, for example.

This makes an investment in KTOS shares somewhat more risky than before the rally began. Investors may still choose to seize an opportunity to buy in based on these strong fundamentals, or might prefer to look for a modest dip in share price to make a move.

Disappointing Earnings Weigh on TransDigm Shares, But Long-Term Outlook Is Strong

TransDigm Group Inc. NYSE: TDG, the largest of these three companies with a market cap of around $80 billion, builds aircraft components for general aerospace and defense applications. The company also stands out for its less-than-stellar earnings in the latest round.

TransDigm missed earnings and revenue for its fiscal third quarter due to issues with Airbus and Boeing NYSE: BA and lower commercial build rates.

However, defense revenue is the area to watch, thanks to a 13% YOY improvement in the latest quarter. This helped the company to generate an impressive $630 million in cash flow at the same time. TDG shares fell immediately following the earnings report in early August and have so far failed to recover.

With strong analyst support and upside potential, this may be a unique opportunity to buy the dip.