It’s time to dump defense stocks biggest winners

Global military spending just hit a record $2.9 trillion.

That’s what happens when the world stops feeling safe.

There are two major wars going on right now. Russia’s war in Ukraine is still draining weapons stockpiles across Europe. The Israel-Iran conflict has pulled the Middle East into another expensive military standoff.

Missiles are being fired. Drones are being shot down. Air defenses are being emptied.

And none of this stuff is cheap.

A single interceptor missile can cost millions. A fighter jet costs more than a luxury apartment building.

So governments are doing what governments always do when the world gets dangerous…

They’re rearming.

Germany is rebuilding its military. NATO countries are rushing to hit spending targets. The U.S. is replenishing everything it sent overseas. Europe is waking up after decades of underinvestment.

Defense is no longer optional.

But the biggest winners of the last 50 years might not be the winners of the next 10.

Because while governments are spending like never before… the companies getting that money are starting to look very old.

The so-called “Big 5” defense giants are about to be disrupted… and new players are coming for their throne.

“Hey Google, show me an oligopoly.”

Back in the early 90s there were over 50 companies that regularly made weapons, tanks, fighter jets, and battleships for the US military.

Through decades of consolidation and acquisitions, only 5 are left standing.

The so-called Big 5 dominate the U.S. defense industry. Over 60% of defense dollars flow into the pockets of Boeing (BA), Raytheon Technologies (RTX), Lockheed Martin (LMT), Northrop Grumman (NOC), and General Dynamics (GD).

Their lucrative contracts can last 10 years or more, offering a steady stream of cash from good ol’ Uncle Sam.

For investors, that kind of predictable, long-term government funding has been a goldmine. Stocks of the Big 5 have absolutely crushed it over the past 50 years.

Northrop Grumman has soared 14,000%. Raytheon returned 22,000%. And General Dynamics handed back 27,000%.

A $10,000 investment would grow into $2.7 million.

If you made money on these stocks, great job. Now it’s time to dump them. Because the next 50 years won’t look anything like the last.

The Big 5 firms are heading straight for the innovation graveyard.

Their cozy oligopoly has bred stagnation.

With no real competition, there’s no need to build better, faster, or cheaper.

And because they’re still the only game in town, they get to set the price—whatever it is.

Back in the old wars, the expensive part was usually the missile.

Today, Iran has flipped the math.

A Shahed-style drone can cost tens of thousands of dollars. But shooting it down can require Patriot or THAAD interceptors costing millions per shot. In the Iran conflict, U.S. air defenses reportedly burned through billions in interceptors alone, while the Pentagon says total U.S. operations have already cost about $25 billion.

Back in the 70s defense contractors were pumping out new aircraft every 5 years. Now it takes more than 20. We’ve gone backwards!

The dreaded F-35 program started before the iPhone launched and still isn’t finished. It's now projected to cost $2 trillion overall.

Or look at the disaster Boeing Starliner spacecraft has been. Fortunately, NASA also hired SpaceX at the same time. SpaceX’s Crew Dragon has already completed 26 missions to the ISS since 2020. And for half the money Boeing is wasting.

Innovation vs bureaucracy. You choose.

These aren’t innovative companies anymore. They’re bloated bureaucracies, run by lawyers, lobbyists, and accountants.

They’re stuck upgrading Cold War-era systems while the future is being built elsewhere.

They missed the artificial intelligence (AI) wave. They missed autonomy. And now they’re headed for the graveyard.

A wave of innovative defense startups is coming to take their place.

Ever heard of Anduril?

It’s the Lockheed Martin of the 21 century.

The Pentagon selected Anduril to lead the Air Force’s flagship AI drone program. The goal: build 1,000 unmanned aircraft by 2030.

This is a watershed moment.

Anduril beat out Lockheed, Boeing, and Northrop Grumman to win this deal.

That’s no small feat. The US military supply chain is an “old boys club.” It’s one of the hardest—if not the hardest—markets to break into.

And Anduril isn’t the only exciting defense startup.

Shield AI is another rising star.

They build drones and fighter jets that fly without GPS or human pilots.

Their flagship drone, Nova, can map buildings, clear threats, and make real-time decisions using AI.

Then there’s Epirus. This company is straight out of a sci-fi movie. It makes beam weapons. Think electric bug zappers for the battlefield. They can intercept missiles and fry drone swarms mid-air.

These aren’t prototypes from some secret military lab. They’re real, they’re working, and they’re coming for the Big 5’s lunch.

Palantir (PLTR) was the first defense stock to be added to the S&P 500 in 46 years.

Palantir doesn’t make bullets or tanks—it’s an AI software company.

That alone tells you everything.

We’re witnessing a changing of the guard.

I’m not saying the Big 5 will disappear overnight. They’re too embedded in the military-industrial machine.

But eventually, investors will wake up to the truth: the real opportunity is in the next generation of innovators. Make sure you don’t end up holding the bag. Today’s as good as a time as any to throw the Big 5 out of your portfolio.

Unfortunately, the most exciting defense tech companies—like Anduril, Shield AI, and Epirus—remain private for now.

But I expect we’ll see a wave of them go public in the next 2–3 years. Those may turn out to be great buying opportunities.