Jefferies senior analyst Sheila Kahyaoglu says she’s surprised to see defense stocks keeping calm in the wake of geopolitical escalation in the Middle East.
Tehran attacked US airbases in Qatar in response to the latter’s strike on its nuclear facilities over the weekend.
And while President Donald Trump said he’s brokered a ceasefire following these developments, both Israel and Iran claimed their adversary had violated it on Tuesday.
Still, major US defense stocks like RTX, Lockheed, and Northrop are down versus last Tuesday at the time of writing.
Why defense stocks still remain worth owning
According to Jefferies’ Kahyaoglu, muted response from the US defense stocks despite the Israel-Iran conflict does not warrant turning your back on them just yet.
Why? Because Trump’s controversial tax-and-spending bill proposes increasing defence spending by a whopping $150 billion, or about 13% on a year-over-year basis.
If Congress approves that proposal and about half of it goes to the US President’s “Golden Dome” project (perhaps in fiscal 2026), it could prove a meaningful tailwind for existing defense firms given he (Trump) wants to deploy it within three years, the analyst told clients in her latest report.
While the likes of RTX, LMT, and NOC are more obvious buys against that backdrop, Kahyaoglu is bullish on a few under-the-radar defense stocks for the next 12 months as well.
These include Elbit and Kratos. Let’s take a closer look at what each of these two has in store for investors in the back half of 2025.
Elbit Systems Ltd (NASDAQ: ESLT)
A $150 billion boost in US defence spending – especially with allocations for missile defence, munitions, and advanced technologies – could significantly benefit Elbit stock.
As a key supplier of precision-guided weapons, electronic warfare systems, and border surveillance tech, ESLT is well-positioned to win new contracts or expand existing US partnerships.
Increased funding for programs like the “Golden Dome” missile shield may also create demand for Elbit’s battle-proven air defence solutions.
With geopolitical tensions on the rise and US allies seeking interoperable systems, the Israeli firm’s US exposure and NATO-friendly portfolio could drive investor optimism and revenue upside.
Kratos Defense & Security Solutions Inc (NASDAQ: KTOS)
Kratos shares could be a key beneficiary of Trump’s $150 billion defence boost as well, especially with $13.5 billion earmarked for accelerating production from defence startups and nontraditional firms.
KTOS specialises in unmanned systems, hypersonics, and satellite technology – areas aligned with the bill’s priorities, including AI-powered defence and autonomous platforms.
With a strong book-to-bill ratio and growing backlog, Kratos is strongly positioned to secure new contracts and scale production under the Trump administration.
The expected increase in defense spending enhances visibility into its future demand, potentially driving revenue growth, margin expansion, and eventually investor confidence in KTOS shares in 2025 and beyond.
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