Defense stocks are attracting attention as spending increases

“Yes, we have these two hot wars going on, but I think we’ve seen a significant reboot of globalization and Pax Americana since the start of Trump 2.0, so military spending will be structurally higher,” said Brian Madden, chief investment officer at First Avenue Investment Counsel. He said certain parts of the market that typically do well in times of conflict haven’t done so for the reason that Iran war began in February, including defense firms.

Defense stocks profit from rising global spending

Madden said the case for defense stocks goes beyond the present conflict within the Middle East, highlighting aspects including the fourth-year war in Ukraine, the U.S. attack on Iranian nuclear facilities in the summertime of 2025 and U.S. President Donald Trump’s call to push NATO members for more defense spending.

With defense stocks failing to achieve significantly through the conflict, coupled with longer-standing geopolitical issues and rising defense budgets, there could possibly be some buying opportunities, based on Madden. “I would argue that the case for allocating a larger portion of a portfolio to either pure or hybrid defense exposures was already strong before this latest conflict erupted,” he said.

Chris McHaney, head of investment management and strategy at Global, said countries around the globe had taken steps to strengthen their very own military capabilities.

“When you think about defense spending in the context of governments increasing their budgets and investing more in these areas, these are situations that are more strategic and long-term in nature and not necessarily tied to the day-to-day of the domestic economy,” he said.

McHaney said many countries, not only the U.S., are increasing spending for investors seeking to capitalize on the theme of a world defense expansion and that investors should consider global exposure. And investing in defense doesn’t necessarily mean weapons. Areas equivalent to cybersecurity, AI and drone technology could possibly be areas that investors could consider, he said, given the extent to which defense spending is being concentrated in these areas.

In 2025, Canada spent $63.4 billion on national defense, meeting its NATO commitment to spend two percent of GDP on defense for the primary time. Prime Minister Mark Carney also announced in March that the federal government would invest $32 billion in military outposts within the country’s northern regions.

For Canada to fulfill its NATO commitments, Madden says spending is required in a wide range of areas, equivalent to soldier compensation, in addition to bases, facilities, weapons, ammunition and more. “The problem essentially is that Canada doesn’t make these things and so we import them primarily from the United States but also from other NATO allies,” he said.

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As a result, Madden said Canadian retail investors searching for more direct exposure to defense stocks may look to large U.S. defense firms equivalent to Lockheed Martin or Northrop Grumman Corp. could turn.

“Canadian retail investors could have some exposure to the indirect Canadian companies, where they represent a kind of hybrid exposure to the civil economy and the defense economy,” Madden said, pointing to names like Bombardier Inc. and CAE Inc.
Defense-related firms, equivalent to engineering and construction firms, could also profit from increased military spending in Canada, he said.

“They will probably raise their elbows and enter into some tenders for some of the infrastructure that Canada needs to build to fulfill this promise, such as ports, airstrips and accommodation for military expansion and bases,” Madden said. “So your WSP Globals and your AtkinsRéalis and your Aecon construction… those kinds of names are not pure defense plays, but they are in all likelihood somehow in the supply chain and could be a second derivative of the trade.”

Investors balance ethics and defense options

However, as global conflicts proceed, some are investing from an environmental, social and governance perspective and will be reluctant to allocate money to the defense industry. “I think retail investors have to decide whether this should be the guiding factor in investment decisions, and then it’s a moral judgment,” Madden said.

Another consideration is whether or not an investor is willing to speculate in Canada’s defense supply chain to make sure sovereignty, he said. Some may prefer to take positions in cybersecurity firms slightly than traditional defense firms.

Overall, he said it was a private decision.

“Those who are overlooking some of these sectors may be leaving money on the table, and that’s a perfectly valid decision on their part. It’s just one that needs to be made with eyes wide open,” Madden said.

Via Canadian Press

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