The global defence sector has lately been an outlier compared with cyclical growth sectors. Even as geopolitical tensions have sharpened—with US and Israel striking since March, followed by naval standoffs in the Strait of Hormuz and fresh arms deals across the Gulf—many leading defence stocks have lagged the broader market and retreated after encouraging earnings. The explanation is less about fading demand than about the familiar rhythms of finance. After a blistering multi-year advance in the past half decade, valuations had become stretch, with much of the geopolitical premium already baked in. When the expected conflict materialised, investors duly sold the news, locking in gains rather than chasing further upside in a seemingly richly priced sector.

Yet, the underlying investment case is firmer than the recent price action suggests. In a world of great-power rivalry, proliferating regional flashpoints, and rapid technological militarisation, defence spending is no longer a discretionary budget line but an ongoing strategic necessity. Governments have little choice but to keep writing cheques. SIPRI’s latest figures show global military expenditure reached USD2.9tn in 2025, with growth set to continue. The US’s proposed USD1.5tn defence budget for FY27, NATO’s march towards 5% GDP targets, emergency procurements in the Gulf, and accelerated rearmament plans in Europe and Asia all point to the same conclusion: national security has become a non-negotiable priority—ceasefire or no ceasefire.

The latest quarterly results reinforce this view. The big primes such as RTX, Northrop Grumman, General Dynamics, and their peers generally beat expectations on revenue and earnings. More telling still were the upward revisions to capital expenditure guidance. These are not mere accounting flourishes; they signal a genuine scaling up of production lines for missiles, drones, and air defence systems. That, in turn, should hasten the conversion of swollen order books into actual revenue and cash flows over the coming quarters—the very inflection point investors have been awaiting.

For the moment, the market’s gaze remains fixed elsewhere, chiefly on the giddy narrative around Tech and AI. That distraction has left defence valuations looking reasonable after their recent correction. What once appeared as an expensive “war trade” now presents itself as a timely way to gain exposure to a durable secular trend: the global arms race that shows no sign of abating. Short-term diplomatic pauses may mute the headlines, but the structural forces, rising budgets, record backlogs and accelerating output remain firmly in place.

The sector’s recent softness says more about valuation arithmetic and investor positioning than about erosion of fundamentals. For investors taking a longer horizon stance, current levels offer an attractive entry into a business that is both geopolitically essential and financially compelling. With governments locked into higher spending and companies finally ramping to meet it, the defence industry is well placed to deliver steady earnings growth long after today’s headlines have faded.

Table 1: Defence budget on the rise across the globe

Source: SIPRI, DBS


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An earlier version of this article carried the headline “Global Defence: Bullets at a Discount.” We recognise that this wording was insensitive given the subject matter and the broader concern around gun violence, particularly its impact on children and families. The headline has since been revised. We apologise for the lapse and regret the offence caused.