The current US defense budget already runs around $1 trillion for the year. The administration's proposal for 2027 would push that to $1.5 trillion, a 44% increase and the largest single-year defense funding jump since World War II. That's not a modest adjustment to an existing spending line. It's a structural shift in how much of the federal budget gets allocated to munitions replenishment, advanced weapons development, and rebuilding the domestic defense industrial base.

This isn't happening in isolation either. NATO members have committed to raising core defense spending to 5% of GDP by 2035, a dramatic jump from the roughly 2% baseline that held for most of the alliance's post-Cold War history. Japan just approved a record $58 billion defense budget for 2026, its twelfth consecutive annual increase. Defense spending has entered what amounts to a structural growth phase across multiple major economies simultaneously, not just a US-specific budget cycle.

What's actually driving the increase

Two forces are compounding here. The first is straightforward: ongoing geopolitical conflicts have drawn down munitions stockpiles faster than peacetime production planning anticipated, and replenishing that inventory takes years of sustained manufacturing investment. The second is more forward-looking. Governments are explicitly funding AI-enabled battlefield technology, drone systems, and next-generation platforms, treating this less as a response to current conflicts and more as a bet on what future conflicts will require.

That combination, replacing what's already been used plus building for what comes next, is why this spending cycle looks more durable than past defense budget increases that faded once a specific conflict wound down. Munitions replenishment alone tends to sustain multi-year order books once contracts are signed, and the AI and drone technology investment layered on top adds a second, longer growth runway behind it.

The domestic industrial base piece is worth separating out too. Years of underinvestment left many contractors without the manufacturing capacity to scale production quickly even when funding is approved, which is part of why budget increases of this size tend to translate into revenue over several years rather than showing up all at once. Expanding a missile production line or a shipyard's capacity takes real time regardless of how quickly the appropriation itself moves through Congress.

Where the backlog is landing

Lockheed Martin has one of the clearest examples of this dynamic, with a record order backlog anchored by major fighter jet and missile defense programs. GE Aerospace is riding a related but distinct trend, dominant aircraft engine platforms paired with a high-margin aftermarket services business that benefits from sustained military and commercial flight activity alike. On the smaller, more speculative end, companies like Red Cat are positioned as pure-play bets on the drone spending specifically being called out in these expanded budgets.

Whitmore's Watchlist:
> LMT (Lockheed Martin Corporation): Carries a record backlog tied directly to the fighter jet and missile defense programs central to this spending increase.
> GE (GE Aerospace): Benefits from both new platform demand and a durable, high-margin aftermarket services business.
> ITA (iShares US Aerospace & Defense ETF): Broad exposure across the sector for investors who want the theme without picking individual contractors.

None of this spending is guaranteed to clear Congress at the proposed $1.5 trillion level. Budget proposals of this size typically get negotiated down, and the actual appropriated figure for 2027 could land meaningfully below the administration's initial ask. What's less in question is the direction, both the current $1 trillion baseline and the proposed increase point toward sustained growth rather than a plateau, regardless of exactly where the final number settles.

The read for investors

A defense budget proposal this large, layered on top of NATO's 5% GDP commitment and Japan's continued increases, describes a multi-year global spending cycle rather than a single fiscal year event. That distinction matters for how to think about valuation in the sector. Contractors with backlogs stretching multiple years out are pricing in a spending environment that looks likely to persist, not one that depends on this specific budget cycle landing exactly as proposed.

Whitmore's Take: The scale of this spending increase, both domestically and among allies, suggests defense is behaving like a structural growth sector right now rather than a cyclical one tied to a single conflict. Worth treating it accordingly when weighing position sizing in the space.

Written by Daniel Whitmore
Millionaire Insiders