Defense Stocks Head Into Earnings At Record Highs — Is The Boom Just Beginning?

The defense sector is on fire in 2025 — and investors are watching earnings season for signs the rally can continue.

The iShares U.S. Aerospace & Defense ETF ITA is up 33% year-to-date through July 16, on track for its best annual return since 2013.

The fund gained 25% in the first half alone, outperforming both the Vanguard S&P 500 ETF VOO and the Invesco QQQ Trust QQQ by double-digit margins.

See Also: Lockheed Martin Tops Defense Peers In Capital Efficiency — But Market Isn’t Impressed

Washington Fueled The Rally—Now Investors Want Results

Investors have already bought the rumors—now they want the facts. The explosive rally in defense stocks has been fueled by a fundamental shift in Washington's priorities and the rising tide of global tensions.

On July 4, President Donald Trump signed the "One Big Beautiful Bill Act," a sweeping defense package that injects $156.2 billion into the Pentagon—the largest single-year boost in over a decade.

The bill directs tens of billions toward areas that could redefine the future of warfare and defense contracting. Shipbuilding alone receives $29.2 billion, while $24.4 billion is allocated to integrated air and missile defense—what the administration has dubbed the "Golden Dome" initiative.

Another $25.4 billion is earmarked to strengthen munitions production and shore up supply chain resilience, and $16 billion will go toward scaling low-cost weapons systems.

The budget also includes $10.8 billion to modernize the U.S. nuclear arsenal and $8.6 billion to support new air superiority projects.

Q2 2025 Defense Earnings Preview: Who Reports and When

Defense stocks slated to report earnings by the end of July include:

What Analysts Are Watching In Defense Earnings

With defense stocks sitting at record highs, Goldman Sachs analyst Noah Poponak cautions that expectations are running hot.

In a July 16 preview, Poponak and his team mapped out where they see opportunity across the aerospace and defense landscape—and where the cracks might show.

Aerospace: Boeing Back in Focus

Goldman remains upbeat on aerospace industry, especially Boeing Co. , which delivered 60 aircraft in June—a clear improvement over earlier production trends.

Supplier sentiment has also turned more positive, with stronger communication and steadier order flow.

Still, aircraft demand continues to exceed supply, a dynamic expected to last well into the next decade, supporting pricing power and margins across the industry.

“We like aerospace original equipment where supply remains below demand, there is multi-year growth visibility, and Boeing continues to improve production and delivery rates.” Poponak said.

The aftermarket segment is thriving, growing faster than global available seat miles (ASMs) for four straight quarters. Goldman attributes this to pent-up demand, aging fleets, and strong pricing—a combination that should keep the sector buoyant even as near-term air travel shows signs of softening.

The business jet space looks more idiosyncratic. Leading indicators are plateauing, and while new production remains disciplined, Goldman expects fewer broad-based tailwinds going forward. Still, aftermarket sales here remain high quality and margin-rich.

Defense Tech: Emerging Winners

Goldman favors non-traditional defense tech firms, which stand to benefit from a Pentagon pivot toward nimble, cost-effective systems.

While reconciliation funding may not hit second-quarter results directly, it's likely to surface in earnings call commentary—and eventually in backlog growth.

"Defense tech companies appear to be on the verge of receiving significant funding relative to their size," Poponak said.

Despite near-record Department of Defense funding, Goldman is cautious on legacy hardware contractors.

Programs like the F-35 face funding cuts, and the Pentagon is pushing for tougher terms across the industry. Instead, Goldman prefers companies aligned with funded priorities like shipbuilding and missile defense.

Government IT: Pressure Mounts

In government IT, the risk is rising. DOGE contract reviews are leading to cancellations—most notably at Booz Allen Hamilton BAH. Margins, bookings, and guidance could all face pressure this quarter, particularly for firms reliant on traditional service contracts.

Goldman's Top Defense Picks And Red Flags For Q2

• TransDigm TDG – Strong aftermarket growth, upside to earnings, and capital flexibility.
• CAE Inc. CAE – Valuation play with improving execution under new management.
• L3Harris – Well-positioned for growth; exposure to missile defense spending.
• Huntington Ingalls – Beneficiary of shipbuilding funds, improving labor dynamics.

Stocks facing headwinds:

• Booz Allen – DOGE scrutiny, slowing growth, and mounting contract risks.
• Lockheed Martin – Uncertainty around core programs and contracting terms.
• SAIC Inc. SAIC – Back-end loaded year with potential margin compression.
• V2X Inc. VVX – Weak first quarter, high execution risk in the second half.

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