2 Defense Stocks to Watch Now
2 Defense Stocks to Watch Now
Key Takeaways
- Defense stocks are rising globally as geopolitical risks increase
- Proposed U.S. military budget expansion is lifting investor sentiment
- Companies like AAR Corp and AIRO Group are drawing attention due to earnings, balance sheet improvements, and long-term defense exposure
Defense Stocks Gain Momentum on Military Spending Expectations
Defense stocks are climbing again as President Donald Trump signals plans to request a higher U.S. military budget. This development is giving investors fresh confidence in the defense sector, especially at a time when global politics is playing a bigger role in market direction.
In Europe, a basket of defense stocks tracked by Goldman Sachs rose as much as 3.8% in one session, pushing weekly gains to around 13%. U.S. defense companies also reacted strongly, with major contractors posting sharp premarket gains after earlier volatility.
Asian defense stocks followed the same trend, reflecting how global security concerns are increasingly shaping investor behavior.
Geopolitics Driving Market Sentiment in 2026
So far this year, geopolitical developments have remained in focus. The U.S. has carried out military actions abroad, and the White House has indicated it would not fully rule out the use of military force in certain strategic situations.
Adding to this backdrop, President Trump has called for a $500 billion increase in annual defense spending, reinforcing expectations of long-term government support for military and defense-related industries.
As a result, defense stocks are becoming one of the most closely watched areas of the market in 2026.
AAR Corp (NYSE: AIR): Strong Earnings and Improving Efficiency
AAR Corp is an aviation services company serving both commercial and government customers worldwide. The company recently attracted market attention after reporting stronger-than-expected fourth-quarter 2025 results.
Financial Highlights
- Quarterly revenue: $795.3 million, up 15.9% year over year
- Revenue beat analyst expectations by 4.4%
- Adjusted earnings per share: $1.18, exceeding estimates by 14.2%
- Share price reached a new 52-week high at $95.06
- Stock up 12.6% year-to-date
Operational efficiency also improved significantly. AAR’s operating margin expanded to 8.4%, compared with a negative 0.3% in the same quarter last year. This suggests better cost control and stronger execution.
Forward Outlook
For the first quarter of fiscal 2026, AAR expects revenue of about $820.6 million, roughly 4% above market forecasts. This guidance helped reinforce positive investor sentiment.
AAR’s Balance Sheet and Business Expansion
While cash and cash equivalents declined from $96.5 million (May 2025) to $80 million (August 2025), the company’s total current assets increased from $1.51 billion to $1.56 billion, indicating overall balance sheet stability.
Other notable financial improvements include:
- Total sales rose from $661.7 million (August 2024) to $739.6 million (August 2025)
- Gross profit increased from $117.2 million to $133.7 million
- Net income nearly doubled from $18 million to $34.4 million
- Earnings per share rose from $0.50 to $0.96
Recent business developments, including acquisitions and multi-year service agreements, suggest AAR is expanding its engineering and aviation service capabilities to support future growth.
AIRO Group: A High-Growth Defense and Drone Company
AIRO Group Holdings, Inc. is a smaller but fast-developing aerospace and defense company with a market value of approximately $336 million. The company operates across drones, avionics, and training services.
Revenue Breakdown
- Drones: $70.96 million
- Avionics: $6.66 million
- Training: $4.74 million
Although AIRO reported lower third-quarter sales compared to the prior year, long-term forecasts remain optimistic.
AIRO’s financial position has improved notably over the past year.
Balance Sheet Improvements
- Cash assets increased from $20.74 million (Dec 2024) to $83.48 million (Q3 2025)
- Total assets rose to $774.57 million
- Total liabilities fell sharply from $152.26 million to $35.02 million
Income Trends
- Net loss reduced from $37.94 million (2024) to $4.06 million (2025)
- Net loss per share improved from $2.32 to $0.19
- Research and development spending increased, reflecting continued investment in future technologies
The company is expected to grow revenue at an estimated 33.3% annually, faster than the broader market, with profitability projected within the next three years.
Long-Term Perspective: Defense, Technology, and Energy
While advanced technologies such as thorium reactors may offer long-term potential, most remain in early research and development stages. For now, investors appear more focused on defense companies with existing contracts, improving financials, and exposure to government spending.
Defense, aerospace, and autonomy technologies are likely to remain in focus as global security priorities evolve.
Final Thoughts
The renewed rise in defense stocks highlights how closely markets are tied to geopolitical developments. Companies with strong balance sheets, improving profitability, and exposure to long-term defense spending trends may continue to attract investor interest.
However, market volatility remains a factor, and defense stocks can react quickly to political statements, budget negotiations, and global events.
Disclaimer
This article is for informational and educational purposes only and does not constitute financial, investment, or trading advice. All financial figures are based on publicly available information and should be independently verified. Investing in stocks involves risk, including the possible loss of capital. Readers should conduct their own research or consult a qualified financial advisor before making investment decisions.
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