The Top 3 AI-Focused Defense Stocks to Put on Your RadarWritten by Jeffrey Neal Johnson. Published 10/23/2025.
Key Points- The world's leading defense firms are capitalizing on rising global demand for next-generation military technology and intelligent systems.
- Defense contractors with demonstrated leadership in artificial intelligence and autonomous systems are poised for sustained long-term growth.
- The leading defense innovators provide a compelling blend of massive backlogs, AI-driven innovation, and consistent shareholder returns.
In an era defined by renewed great-power competition and the rise of autonomous warfare, the most compelling defense investments are shifting from traditional hardware makers to firms best positioned to dominate the technological arms race in artificial intelligence (AI), unmanned systems, and space. The defense sector has returned to the spotlight as governments pivot toward technological superiority. This change requires investors to re-evaluate key defense players, focusing on those demonstrating leadership and contract success in AI-powered autonomous systems and space-based assets — now primary drivers of defense budget growth.
The New Battlefield: AI and Autonomy as Growth DriversThe global defense landscape is undergoing a fundamental transformation. Warfare is evolving from a contest of platforms to a conflict of networks, where victory depends on collecting, processing and acting on vast amounts of data faster than an adversary. That reality has elevated AI, autonomous systems and space-based assets from experimental concepts to strategic military and government imperatives.
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This shift is reflected in government spending. The proposed Fiscal Year 2026 Department of Defense budget, for example, allocates more than $13 billion to autonomy and AI initiatives intended to accelerate development of the foundational technologies for this new era of warfare. For investors, the directive is clear: identify the companies building the intelligent, connected and autonomous platforms that will define 21st-century conflict.
Lockheed Martin: Integrating Intelligence into Dominant Platforms Lockheed Martin (NYSE: LMT) is evolving beyond its role as the world's largest defense contractor. The company is embedding AI and autonomous capabilities into its leading platforms, turning them into intelligent nodes on a networked battlefield.
The F-35 Lightning II exemplifies this approach — functioning as a flying data-processing hub designed to gather and share critical intelligence across a combat zone. That capability helped drive Lockheed Martin’s Q3 2025 results, where the Aeronautics division saw sales climb 12% to $7.3 billion.
Lockheed is also advancing autonomy with projects such as an autonomous Black Hawk helicopter for uncrewed logistics and evacuation missions.
Financially, Lockheed reported strong Q3 2025 results with consolidated sales of $18.6 billion and a record backlog of $179 billion, giving the company significant revenue visibility. It raised full-year guidance and increased its share repurchase authorization, signaling confidence in its outlook.
Despite the strong report, Lockheed Martin’s stock dipped modestly on Oct. 21, 2025 — a possible sell-the-news reaction. With a market capitalization of roughly $115 billion and a consensus Hold rating, the stock offers stability. Its 2.68% dividend yield, supported by 23 consecutive years of increases, provides income for investors seeking a mix of technological innovation and shareholder returns.
Northrop Grumman: Architect of Next-Generation Systems Northrop Grumman (NYSE: NOC) has positioned itself as a specialist in the advanced systems driving the technological arms race. The company is prime contractor for the B-21 Raider, a next-generation stealth bomber designed for a networked, high-tech battlespace. In Q3, the program hit a milestone when a second aircraft entered flight testing.
Northrop is also developing command-and-control systems essential for autonomous warfare. Its Integrated Battle Command System (IBCS) uses an open architecture to connect disparate sensors and weapons into a unified network — a critical enabler of AI-driven decision-making. That capability helped drive a 14% sales increase in its Defense Systems segment.
In its Q3 2025 report, the company posted earnings of $7.67 per share, well ahead of estimates, and raised full-year profit guidance. However, it missed revenue expectations and trimmed its full-year sales forecast, which pressured the stock.
The market's reaction underscores investors' focus on top-line growth. Despite the near-term softness, the company's Moderate Buy consensus rating and strategic footprint in high-priority defense areas make it a compelling vehicle for exposure to autonomous systems and strategic deterrence. Northrop Grumman's market capitalization is roughly $85.6 billion.
RTX Corporation: The Nervous System of AI-Powered DefenseIf modern warfare is about data, RTX Corporation (NYSE: RTX), through its Raytheon segment, builds much of the critical nervous system: the sensors, networks and smart munitions that let armed forces see, communicate and strike with precision.
The demand for RTX's technology was clear in its Q3 2025 earnings report. The Raytheon segment posted a 10% sales increase, driven by strong demand for Patriot air defense systems and SM-6 missiles.
The company secured its largest-ever order for AMRAAM missiles and is using proprietary AI tools to identify production bottlenecks — efforts that have helped more than double missile output this year.
RTX beat expectations in Q3 with revenue of $22.5 billion and earnings of $1.70 per share, raised full-year guidance and reported a massive $251 billion backlog. The results were met positively by the market, sending the stock to a new 52-week high.
RTX's stock price jumped more than 8% on the earnings release, reflecting investor confidence. With a Moderate Buy consensus rating and a market cap above $234 billion, the company is directly benefiting from growing global demand for intelligent systems and precision weapons that underpin modern defense.
Investor Considerations in the Tech Cold WarThe defense companies best positioned for long-term growth are those that have embraced the shift to a software-defined, AI-enabled battlefield:
- Lockheed Martin — offers a stable foundation, upgrading dominant platforms with next-generation technology while providing reliable shareholder returns.
- Northrop Grumman — represents a more focused, growth-oriented bet on autonomous systems and strategic platforms.
- RTX Corporation — supplies the sensors, networks and intelligent weapons that form the backbone of modern defense.
The trajectory is clear: the future of defense investing favors companies winning the new tech cold war. Traditional metrics like production volumes remain important, but long-term growth will increasingly depend on technological leadership in the digital domain.
Investors should closely monitor AI-specific contract awards, R&D spending on digital technologies, and strategic partnerships that strengthen a company’s software and autonomy capabilities. In this evolving landscape, technological dominance is the most reliable indicator of future prominence and performance. |
