Defense Giants Miss the War Chest as New Tech Grabs the Upside

Missiles are flying, budgets are booming, but the usual beneficiaries are stuck in first gear. The Iran War’s first four days drained ~$11B in munitions, while Trump floated a record $1.5T defense budget for 2027, yet Big Defense stocks sit flat. After a two-year rally to near-historic valuations, investors see mounting risk as modern warfare evolves rapidly.

• Since Feb. 28, the “Five Primes,” LockheedLMT
  , NorthropNOC
  , General DynamicsGD
  , BoeingBA
  , and RTXRTX
  , have slipped ~1% on average.
• Markets are fixated on tighter oversight, curbs on buybacks and dividends, and creeping costs — all squeezing EPS and undermining rich valuations.

Follow the drones: While the primes stall, spending on space, AI, and drones is growing over 20% within the 2026 budget — and smaller defense tech names are cashing in. State Street’s Aerospace & Defense ETFXAR

, tilted toward nimbler players, has climbed 67% over the past year vs. 53% for the iShares’ variantITA

, which leans toward the big five. The Iran war is accelerating the shift of how multimillion-dollar missiles to intercept drones costing tens of thousands is a losing equation. The longer this conflict runs, the more Pentagon dollars will chase cheaper, smarter contractors.