By President Donald Trump’s newly announced trade agreement with the European Union is sending ripples through global markets – and defense stocks are riding the wave.
EU has committed to buying “hundreds of billions of dollars” worth of US military equipment as part of the announced trade deal, which includes material tariff reductions on the region’s products as well.
At the time of writing, Lockheed Martin is up over 1.0% while Kratos Defence gained as much as 2.5% on Monday – reflecting investor optimism on what this meaningful increase in defence procurement will mean for these names.
US defence stocks stand to benefit from the EU trade deal
Defence stocks are in focus this morning since the centrepiece of the EU trade deal is the region’s pledge to spend more than $150 billion on US military equipment.
The announcements directly benefit major defence contracts like Lockheed Martin, Kratos, and RTX – all of which could see increased demand for systems ranging from missile defence platforms to cybersecurity solutions.
Additionally, the bloc plans on negotiating steep tariffs on steel and aluminium – critical materials in aerospace and weapons manufacturing – with the Trump administration as well, which may further boost margins for these firms.
The aforementioned surge in procurement comes on the heels of NATO’s broader push to raise defence spending to 5.0% of the gross domestic product (GDP) by 2035, up from the current 1.5%.
According to experts, this could translate into multi-year contracts and stable cash flows for US defence firms.
On Monday, Julian Cruz, a defence analyst, for example, said, “This deal is a strategic windfall for American contractors. It’s not just about exports – it’s about reshaping Europe’s defence architecture around US technology.”
Should you invest in US defence stocks today?
Beyond procurement, the US-EU trade deal signals a deeper geopolitical shift.
European nations are increasingly pivoting away from non-US suppliers, favouring American firms for advanced systems like hypersonic weapons, AI-powered radar, and autonomous drones.
RTX’s Networked Collaborative Autonomy (NCA) and Lockheed’s AI Factory partnership with Google Cloud are examples of how US firms are integrating cutting-edge technology into defence platforms.
The EU’s $600 billion investment in US infrastructure – including AI and semiconductors – also benefits defence contractors with dual-use capabilities.
RTX’s $218 billion backlog and LMT’s recent $3.1 billion Aegis Combat System contract underscore their resilience and global reach.
As trade tensions ease, defence stocks are emerging as safe havens in a volatile macro environment, with investors reallocating capital toward firms positioned for transatlantic growth.
Investors should also note that both RTX and Lockheed Martin stocks currently pay a healthy dividend yield of 1.74% and more than 3.0% respectively, which makes them all the more exciting to own in the second half of 2025.
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