Defense

The defense sector is poised for sustained multi-year expansion driven by escalating geopolitical tensions, great-power competition with China, and regional conflicts that are prompting governments worldwide—led by the US—to accelerate military modernization, munitions replenishment, and investment in next-generation technologies such as AI-enabled systems, autonomous platforms, hypersonics, and space capabilities. The US defense market alone stands at approximately USD 354 billion in 2026, projected to grow at a 3.6% CAGR to over USD 423 billion by 2031, while the broader global defense market exceeds USD 2.7 trillion and is expanding at around 5% annually. Key growth drivers include record order backlogs, rising defense budgets (e.g., proposed US FY2026 increases), and a shift toward software-defined, networked warfare. The central tension lies in balancing rapid innovation and supply-chain resilience against persistent challenges like skilled labor shortages, contracting delays, and the debate over sustainable margin expansion amid inflationary pressures and shifting procurement models.

• Companies deriving a majority of revenue from military/aerospace platforms, systems, munitions, electronics, and sustainment services for defense customers
• Firms specializing in advanced defense technologies including missiles, radar, avionics, unmanned systems, space, and C4ISR
• Prime contractors and key Tier-1/2 suppliers to government defense agencies (e.g., DoD)
• Aerospace businesses with substantial defense divisions focused on military aircraft, engines, and related subsystems

• Pure-play commercial aerospace or airlines without meaningful defense exposure
• General industrials or technology firms where defense represents a minor revenue component
• Private military contractors focused solely on services without hardware or systems development

mid-single digit to low-double digit (defense-specific; broader A&D showing stronger recent quarters)