Trump’s $1T Defense Budget: 2 Stock Winners Beyond Giants

The $1.01 trillion defense budget proposal for 2026 marks one of the most significant military spending increases in recent years, targeting U.S. military readiness against evolving global threats. The 13% boost prioritizes naval fleet growth, missile systems, ground vehicles, and advanced electronics while emphasizing cyber security, space capabilities, and artificial intelligence integration. This comprehensive approach reflects the changing nature of modern warfare and strategic competition.

Despite potential budget debates in Congress, bipartisan support for defense spending makes approval likely, creating predictable revenue streams for defense contractors amid economic uncertainties. The spending surge translates to expanded opportunities in procurement and research and development, potentially adding billions of dollars in contracts over multiple years. While the world’s largest defense contractors will capture significant portions of this budget, the broader defense ecosystem stands to benefit from the increased allocations.

General Dynamics (NYSE:GD) operates across marine systems, combat vehicles, and IT services, positioning it ideally for the budget’s focus on shipbuilding and land forces. The company’s Electric Boat division handles Virginia-class submarines, which are expected to see increased orders as the U.S. Navy aims to expand its undersea fleet. Simultaneously, Bath Iron Works contributes to destroyer programs like Arleigh Burke, directly tied to naval modernization funds outlined in the budget proposal.

On the ground warfare front, General Dynamics’ Abrams tanks and Stryker armored fighting vehicles benefit from army upgrade programs, with a recent $202 million follow-on contract signaling steady order flow. This demand is amplified by ongoing needs in Ukraine and potential Middle East escalations, creating sustained revenue opportunities. The company’s IT arm also gains from increased cyber and data analytics investments included in the budget.

With a market capitalization of $92.4 billion and year-to-date gains of 30%, General Dynamics demonstrates strong market performance. The company’s $95 billion backlog provides exceptional earnings stability, while its 1.8% dividend yield and 34-year payout history appeal to income-focused investors. Beyond military hardware, General Dynamics’ civilian aerospace division through Gulfstream diversifies revenue streams, mitigating risks associated with pure defense plays. Analysts forecast 11% to 12% EPS growth over the next two years, driven by margin expansions from supply chain efficiencies.

L3Harris Technologies (NYSE:LHX) specializes in communications gear, sensors, and space systems, aligning perfectly with the budget’s emphasis on electronic warfare and missile defense. The company’s tactical radios and night vision technology support integrated defense systems, while its space sensors aid critical satellite programs. These capabilities position L3Harris to gain substantially from increased funding for drone countermeasures and secure networks.

The company recently increased its 2026 revenue targets to $23 billion, supported by a substantial $34 billion backlog and $1.2 billion in cost savings from efficiency initiatives. With a market capitalization of $55.4 billion and a forward P/E of 18 for a stock trading at $297 per share, L3Harris presents an attractive investment opportunity. The firm’s acquisition of Aerojet Rocket Engines enhances propulsion capabilities for hypersonic and missile projects, which are key priorities in the proposed budget.

L3Harris’s international exposure, representing 20% of sales, benefits from allied nations’ rearmament efforts, including a recent $1.1 billion contract with the Netherlands for communications systems. The company generated $2.1 billion in free cash flow last year, funding research and development in AI-driven sensors. With a beta of 0.7, L3Harris provides lower volatility than sector peers, making it ideal for balanced portfolios seeking defense upside without excessive market swings.

Both General Dynamics and L3Harris Technologies offer compelling investment cases within the defense sector, supported by the proposed budget’s specific allocations and broader geopolitical trends. General Dynamics provides stability through its massive $95 billion backlog and diversified revenue streams, while L3Harris offers growth potential through its technological focus and international expansion. The companies’ strong cash flows enable consistent dividends and strategic acquisitions, enhancing long-term value.

Geopolitical tensions and NATO spending trends create sustained demand for defense capabilities, providing tailwinds for both companies. General Dynamics’ naval and ground vehicle expertise aligns with core military modernization priorities, while L3Harris’s communications and space systems capabilities address emerging warfare domains. Investors should consider these stocks as complementary plays within a diversified defense portfolio, offering exposure to different segments of the military supply chain with reduced volatility compared to pure-play defense contractors.