Defense & aerospace

Defense companies design and manufacture military hardware and services — fighter jets, missiles, submarines, satellites, radar systems, and increasingly cyber and software. Their customer is governments, especially the US Department of Defense.

It's an industry that exists because countries spend on security regardless of the economy. That makes it strangely stable, but also dependent on political winds and global tension.

Pentagon identifies a need. Solicits proposals. Awards a contract — sometimes worth tens of billions. Contractor designs, builds, delivers over years or decades.

Once a program is in production, switching to another supplier is near-impossible. The revenue locks in.

Three main streams. Major platforms — fighter jets, ships, satellites. Munitions — missiles, ammunition, drones. And services — maintenance, training, cyber.

Munitions and services tend to be more profitable per dollar than platforms. Platforms are bigger but lower-margin.

A new defense entrant has to clear security clearances, decades of regulatory hurdles, and convince the Pentagon it can deliver — all before any revenue. The existing primes (Lockheed, RTX, Northrop, General Dynamics, Boeing defense) form an effective oligopoly.

SpaceX cracking national-security launch is the rare exception. It's still hard.

"Primes" (Lockheed, RTX, Northrop, GD) build the big platforms and run massive multi-decade programs. Steady, dividend-paying.

Niche players (HEICO, TransDigm, Kratos) focus on specific parts or technologies. Higher growth potential, more volatile.

Budget cuts when politics shift toward peace and away from intervention. Cost overruns on huge programs (F-35, Boeing's Air Force One) can erase years of profit on a single contract.

And the moral question — defense investing has direct ethical implications that other industries don't. Some funds (ESG, religious) avoid it entirely, which can affect demand for the stocks.