Defense sector stocks

You might have expected major defense stocks to skyrocket on the news that two major Middle Eastern powerhouses have begun fighting one another. But it hasn’t been quite that simple.

Sure, defense behemoths like Lockheed Martin, Northrop Grumman, and General Dynamics jumped last Friday after Israel attacked Iran. But since then they’ve cooled from last week’s highs—even as the fighting has escalated.

“The longer a conflict takes, there’s less and less benefit for the defense contractor, which might seem counterintuitive,” explained Nicolas Owens, defense equity analyst at Morningstar, in an interview with Brew Markets. “They make money developing the next generation of weapons, they don’t when people are shooting at each other.”

Owens added that Friday’s rally likely had more to do with oil prices than defense contracts themselves.

Defense is going AI-mode

While the big dogs might be lagging, their younger, tech-forward counterparts are climbing the ranks.

“Defense stocks are bifurcating: The underperforming have-nots are the big Department of Defense contractors, with meager share price gains so far this year,” wrote Jackie Doherty, contributing editor at Yardeni Research, in a note. “The outperforming haves are innovative defense tech companies redefining not only how war is waged in the AI era, but how the Defense Department procures weapon systems.”

Palantir, arguably the leader of this new cohort, is up 85% in 2025 and just hit a new all-time high yesterday, outpacing the S&P Aerospace & Defense Select Industry Index, which has risen roughly 20% year to day.

Cashing in on AI

A group of AI-driven startups are shaping the ever-evolving defense industry—for better or worse. That’s probably why it feels like just about everyone is throwing money at defense tech and seeing what sticks.

The CEO of defense tech unicorn Anduril, Palmer Lucky, told CNBC that his company, which has most recently been valued at over $30 billion, will "definitely" go public. Spotify CEO Daniel Ek just led a roughly $690 million funding round for the German AI drone company whose name matches how terrifying it sounds: Helsing.

Even more mainstream tech companies are getting defensive. Just yesterday, OpenAI won a $200 million contract with the US Defense Department. Oracle also just announced a program that helps connect AI vendors with the Pentagon.

And you thought the images your little cousin creates on Midjourney were as scary as AI would get.—LB