This Defense Stock Has a $57B Backlog and New AI Tailwinds

Key Points

• Huntington Ingalls' stock now trades near a 52-week high, although its market capitalization is significantly below the sector average.
• Government defense spending has led to an increase in the company's backlog, boosting EPS forecasts.
• AI implementation could raise margins to new highs, justifying the continuation of its bullish price action.

In the world of defense investing, some of the best opportunities come not from discovering new names, but from re-evaluating essential companies that Wall Street may be underpricing relative to their strategic value.

One such case is Huntington Ingalls Industries NYSE: HII, a major player in the U.S. States defense sector with a market cap of $11.5 billion.

With geopolitical tensions heating up between the United States, China, and the Middle East, Huntington Ingalls stands to benefit from expanding government defense budgets.

Huntington Ingalls' record backlogs, artificial intelligence (AI) adoption, and strong defense spending are creating a rare setup for long-term earnings growth and valuation expansion, despite the stock currently trading near its highs.

Huntington Ingalls Is at the Center of Naval Power

The United States Navy is one of the most extensive and well-equipped in the world.

The 2025 defense budget stands just under $850 billion, with roughly $40 billion dedicated to aircraft carriers for the Army, Air Force, and Navy. These allocations translate to direct revenue opportunities for the contractors that supply critical military infrastructure, like Huntington Ingalls.

But, despite being the largest military shipbuilder in the United States and a major supplier of aircraft carriers, destroyers, and submarines for the Navy, the company trades at a modest valuation relative to its strategic importance.

In its most recent quarter, Huntington Ingalls secured $11.9 billion in new contract awards, boosting its backlog to a record $56.9 billion. These backlog levels have not been seen since the COVID-19 pandemic and provide a long runway of predictable revenue. 

But there's a new factor that could significantly accelerate its value realization: AI integration.

How Artificial Intelligence Is Changing the Game

According to management, Huntington Ingalls' AI implementation is set “to accelerate shipbuilding throughout,” which translates to faster production cycles, lower costs, and expanded margins.

It could also shift long-lead government contracts into more immediate earnings drivers. This transformation is a key reason why HII stock is up 48.1% year-to-date and is now trading at 95% of its 52-week high, despite the long timelines typically associated with defense contracts.

Analysts May Still Be Behind the Curve

It's understandable that some investors do not feel comfortable buying a stock near its 52-week high, especially when analysts are not boosting their ratings or targets.

Investors will soon know if the company hits—or beats—the Q3 analyst consensus forecast of $3.40 as the report is expected to be released on Oct. 30.

However, the MarketBeat consensus Q4 earnings per share (EPS) forecast for HII stock is $4.24, which is 10% higher than the Q2 reported EPS of $3.86. Investors will soon know if the company hits—or beats—the Q3 analyst consensus forecast of $3.40 as the latest earnings report is expected to be released on Oct. 30. It's worth noting that the company's Q2 EPS beat the consensus estimate of $3.23 by a wide margin.

This kind of repeated underestimation signals that analysts may still be too conservative, especially if AI gains continue to compress production timelines and improve margins.

If these trends persist, Huntington Ingalls could see upside EPS revisions in future quarters—a key catalyst for further stock gains.

Institutional investors like Bank of America seem to think this is possible. In August 2025, BofA boosted its stake in Huntington Ingalls by 4%, bringing its total position size to $160.9 million, equal to 1.7% ownership. This move suggests high conviction in HII’s long-term trajectory, especially with a business model that delivers both national importance and expanding financial returns.

Huntington Ingalls: A Strategic Play on Defense and AI

Huntington Ingalls is uniquely positioned at the intersection of national defense urgency and technological transformation. A $57 billion backlog, proven track record as the Navy’s shipbuilder of choice, and AI-powered efficiency gains mark the company as a rare combination of stability, growth, and upside surprise potential.

Because of all this, HII stock remains a compelling opportunity, even at its current share price for investors who can look beyond hype and headlines.