The defence industry is dominated by a relatively small group of contractors with long government relationships, specialised engineering capabilities and multiyear order books. Lockheed Martin, RTX, Northrop Grumman and General Dynamics are among the largest US groups. BAE Systems, Rheinmetall, Leonardo, Thales and Saab are major European names.
Comparisons are complicated because several companies also have large civil aerospace or industrial businesses. Boeing, Airbus and RTX all generate revenue outside defence. Investors therefore need to separate group revenue from defence-specific sales when assessing exposure to military spending.
US contractors operate at unmatched scale
Lockheed Martin's portfolio includes the F-35 fighter, missile systems, helicopters and space programmes. RTX combines Pratt & Whitney and Collins Aerospace with a large defence electronics and missile business. Northrop Grumman is important in strategic aircraft, space and missile defence, while General Dynamics spans submarines, combat vehicles and business aviation.
These programmes can run for decades. That creates unusually long revenue visibility, but it also exposes contractors to procurement delays, fixed-price contract risk and changes in government budgets.
Europe is rebuilding defence capacity
Higher European defence spending has increased attention on BAE Systems, Rheinmetall, Leonardo, Thales and Saab. Rheinmetall has become particularly associated with ammunition, armoured vehicles and Germany's military rearmament. BAE has large positions in combat aircraft, submarines and US defence programmes.
The investment case depends on whether higher budgets translate into sustained production rather than temporary orders. Capacity expansion, skilled labour and supply chains can become constraints when governments try to increase procurement quickly.
Order books matter more than a single quarter
Defence companies frequently report large backlogs because contracts are delivered over many years. A growing backlog can improve revenue visibility, but investors should examine contract quality and expected margins rather than treating every booked dollar equally.
Fixed-price development contracts can be particularly risky when engineering costs rise. Several aerospace and defence groups have recorded large charges on programmes that looked attractive when they were initially awarded.
How to compare defence stocks
Useful measures include organic sales growth, backlog, free cash flow, programme concentration and capital returns. Investors should also understand which government budgets fund the company's largest products and how exposed those programmes are to political change.
Valuation can move ahead of procurement. Defence stocks often rerate when governments announce higher spending, long before that money appears in company revenue. The gap between political commitment and signed contracts is therefore one of the most important things to track.