Defense contracts have risen sharply in recent years as global security challenges intensify. The ongoing war in Ukraine and escalating tensions in the Middle East have prompted European nations and other allies to replenish depleted munitions and expand their military capabilities. NATO members have committed to higher spending targets, with many countries boosting budgets to address immediate threats and long-term deterrence needs.
In the U.S., the War Department is focusing on replenishing stockpiles drawn down by support for Ukraine while maintaining readiness against potential adversaries. This environment of elevated government spending has created strong demand for advanced defense systems, especially this past year.
Following President Trump’s election in 2024, he implemented broader budget cuts in some areas, but defense budgets rose as the administration focused on global security challenges and modernizing military capabilities. In particular, spending on advanced technologies, such as artificial intelligence, cybersecurity, and autonomous systems, was prioritized. With the National Defense Authorization Act (NDAA) just signed into law, over $900 billion in funding was authorized, signaling a deliberate push to accelerate delivery on capabilities.
Among the contractors positioned to benefit from this influx of government spending, both at home and abroad, two stand out for their growth potential heading into 2026: RTX (NYSE:RTX | RTX Price Prediction) and Kratos Defense & Security Solutions (NASDAQ:KTOS).
RTX (RTX)
RTX has seen its stock climb 60% through 2025, reaching all-time highs near $185 per share as defense orders surged. The company’s Raytheon segment reported a book-to-bill ratio of 2.27 in the third quarter, meaning new orders were double shipments, reflecting robust demand for missile systems amid a global rearmament.
Key contracts highlight this momentum: Just this month, Raytheon secured a $1.7 billion deal to supply Spain with four Patriot fire units — the largest such order for that country — while other awards included sustainment support for Patriot systems and contributions to programs like NASAMS for allies. RTX’s overall backlog hit a record $251 billion in Q3, providing multi-year revenue visibility for the second-largest defense contractor.
As a result of the sustained order flow, RTX raised its full-year 2025 guidance multiple times, citing 12% sales growth this past quarter and strong performance in defense segments. In particular, the replenishment needs in Europe and the U.S. helped organic growth in missiles and integrated defense systems.
However, RTX also offers diversification because it also services the commercial aerospace industry through its Collins Aerospace and Pratt & Whitney segments. With delays in plane shipment by Boeing (NYSE:BA) and Airbus, older aircraft are flying longer, requiring increased demand for maintenance, repair, and operations solutions. Pratt & Whitney saw a 23% surge in the commercial aftermarket business while Collins saw a 13% rise.
Analysts project continued strength into 2026, with consensus price targets around $196 per share, with high-end targets reaching $219 per share. These imply 6% to 18% upside, but are supported by the ongoing cycle of elevated defense budgets.
Kratos Defense & Security Solutions (KTOS)
Kratos Defense & Security Solutions was one of the industry’s best performers in 2025, with shares soaring 196%, fueled by its focus on affordable unmanned aerial systems and hypersonics. The company’s unmanned segment posted 35.8% revenue growth in the third quarter, with operating income up 575% due to improved scale.
Kratos holds a leading position in tactical drones like the XQ-58A Valkyrie, which offers high performance at lower costs than traditional platforms. In early 2025, it received a $34.8 million contract modification from the U.S. Marine Corps for Valkyrie mission systems integration under the MUX TACAIR program. Additional developments include a letter of intent for 60 Zeus hypersonic motors and partnerships, such as with Airbus for uncrewed combat aircraft variants targeted for delivery by 2029.
Analysts highlight Kratos as a beneficiary of shifts toward collaborative combat aircraft, hypersonics, and counter-drone technologies. KeyBanc analysts named it a top aerospace and defense pick for 2026, citing its first-to-market advantages and leverage to modernization programs. Price targets have also risen, with consensus targets reaching $100 per share, implying 28% upside, but going as high as $125 per share, for 60% upside. These targets reflect expectations for sustained contract wins in unmanned systems, making its stock a buy in 2026.
Top Gaining Stocks
Top Losing Stocks