The artificial intelligence revolution has turned out to be one of the most important and influential trends in the market we’ve seen in a very long time. Indeed, since the rise of the internet, I can’t think of a technology that has the potential to reshape society in terms of how we all live and work in a similar way to AI.
The debate around the potential benefits and risks tied to the rollout of AI technology continues on. There are plenty of sub-trends within this space, from chip and memory demand, to surging power needs and the rise of data centers within certain communities (with plenty of debate on this front as well).
That said, I’m going to steer clear of AI and all its associated benefits and potential headwinds in 2026, and highlight one key trend I see as being perhaps just as influential for investors looking to benefit from sector-specific upside in 2026.
The Defense Sector Could Become a Growth Engine Again
Image of a tank
I’m of the view that one trend which has the potential to overshadow AI as the discussion point of the year could be global weapons stockpiling ahead of more major conflicts in 2026.
We’ve already seen the Trump administration step into the fray in Venezuela, capturing the current president and looking to impose the administration’s will on the current administration in the South American country, in a bid to shift oil flows globally.
The implications of this move from an energy standpoint are significant, and any future action taken against other oil-producing nations such as Iran could further provide some volatility in the market for investors who have significant exposure to oil stocks.
That said, if we do see a continued ratcheting up of rhetoric, and other actions from the Chinese or Russians toward Taiwan, Ukraine, or any other nation, defense stocks could be the biggest beneficiary of increased geopolitical risk this year.
Which Defense Stocks Look the Most Attractive Right Now?
Missile blasting off
U.S. defense stocks are still the envy of the world, producing impressive quantities of air, sea and land weaponry used not only domestically, but by many of the country’s top allies.
Now, concerns around diplomatic strife between the U.S. and major allies could limit exports from this key sector to the U.S. economy, if countries look to ramp up their own domestic production of munitions in a bid to shore up their own economies. We’re seeing some of that take place in Europe.
That said, I do think three defense contractors now look the most attractive in decades, with Lockheed Martin (NYSE:LMT | LMT Price Prediction), Northrop Grumman (NYSE:NOC) and General Dynamics (NYSE:GD) my top three picks as ways to play a potential global buildup of weapons and defensive/offensive capabilities to counteract threats from all over the board.
Lockheed Martin’s high-end air, missile and rocket systems could eb in high demand, with countries looking for precision strikes and the ability to forego civilian damage (to the greatest extent) likely to drive solid demand for the company’s PAC-3, JASSM-LRASM and CH-53K rockets, which have seen strong sales in recent months.
Northrop Grumman’s B-21 Raider stealth bomber and its Sentinel ICBM replacement program are tow of the key areas I’m watching for the comapny’s growth. With solid Q3 numbers highlighting strong demand for Northrop’s existing portfolio of aircraft and missiles, this is a stock that’s worth watching as order flow picks up across the board.
Finally, General Dynamics’ heavy ground combat systems, nuclear submarines and cybersecurity offerings make this company a top option in the defense sector worth considering. With historic earnings this past quarter supported by strong demand for traditional hardware and higher-margin services, this is a top defense contractor worth considering as a way to play continued geopolitical strife this year.
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