With global tensions continuing to rise, defense spending around the world is expected to surge in the coming years. Analysts estimate that global military expenditures could reach approximately $2.6 trillion this year alone. By the end of the decade, that figure is projected to climb to nearly $2.9 trillion.
In the United States, defense spending could also see a significant increase. President Donald Trump recently proposed a massive $1.5 trillion defense budget for fiscal year 2027. If approved, the proposal would represent a substantial jump from the roughly $900 billion defense budget authorized for 2026. Other countries are also boosting military investments. Canada, for example, has committed approximately $81.8 billion over the next five years to strengthen the capabilities of the Canadian Armed Forces.
From here, global defense spending could rise further, given intensifying conflicts in Russia and Ukraine, as well as increased security issues across Asia and parts of Africa. In addition, NATO allies committed to investing 5% of Gross Domestic Product (GDP) annually in core defense requirements and defense- and security-related spending by 2035. They will allocate at least 3.5% of GDP annually based on the agreed definition of NATO defense expenditure by 2035 to resource core defense requirements and to meet the NATO Capability Targets,” as noted by NATO.
So, what’s the best way to trade it?
One way is to invest in this surge in defense spending is through defense stocks, such as Palantir Technologies (NASDAQ: PLTR), Lockheed Martin (NYSE: LMT), C3.ai (NYSE: AI), BigBear.ai (NASDAQ: BBAI), AeroVironment (NASDAQ: AVAV), and Kratos Defense & Security (NASDAQ: KTOS), to name a few.
Or, you can diversify with exchange-traded funds (ETFs), such as:
Global X Defense Tech ETF (SHLD): A Bet on AI and Defense Technology
With an expense ratio of 0.5%, the Global X Defense Tech ETF (NYSEARCA: SHLD) invests in companies positioned to benefit from the increased adoption and utilization of defense technology. This includes companies that build and manage cybersecurity systems, utilize artificial intelligence and big data, and build advanced military systems and hardware, such as robotics, fuel systems, and aircraft for defense applications. Some of its 49 holdings include Lockheed Martin, RTX Corp., General Dynamics, Palantir Technologies, Northrop Grumman, and L3Harris.
U.S. Aerospace & Defense ETF (ITA): Exposure to Aerospace and Military Leaders
With an expense ratio of 0.38%, the U.S. Aerospace & Defense ETF (BATS: ITA) offers exposure to companies that manufacture commercial and military aircraft and other defense equipment. Some of its 41 holdings include GE Aerospace, RTX Corp., Boeing, Lockheed Martin, Northrop Grumman, L3Harris Technologies, General Dynamics, and Axon Enterprise.
SPDR S&P Aerospace & Defense ETF (XAR): Diversified Access to Defense Manufacturers
The SPDR S&P Aerospace & Defense ETF (NYSEARCA: XAR) seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the S&P Aerospace & Defense Select Industry Index. The XAR ETF has an expense ratio of 0.35%. Some of its top holdings include Lockheed Martin, Northrop Grumman, Howmet Aerospace, L3Harris Technologies, Carpenter Technology, and Curtis-Wright Corp.
Invesco Aerospace & Defense ETF (PPA): Broad Exposure to Defense and Space Innovation
The Invesco Aerospace & Defense ETF (NYSEARCA: PPA) tracks a market-cap-weighted index of US-listed stocks involved in the defense, military, homeland security and space industries. The PPA ETF has an expense ratio of 0.57%. Some of its top holdings include Lockheed Martin, RTX Corp., General Electric, Boeing, Northrop Grumman, and General Dynamics.
Why Defense Spending Could Become a Decade-Long Megatrend
Defense spending is one of the most powerful long-term investment themes in the market. From advanced AI-driven warfare systems to aerospace innovation and cybersecurity infrastructure, governments around the world are preparing for a new era of military modernization—and investors are paying close attention.
Whether through individual defense stocks or diversified ETFs, the sector offers multiple ways to gain exposure to what could become a multi-trillion-dollar growth opportunity over the next decade. While no investment is without risk, the sustained rise in global defense budgets, combined with increasing geopolitical uncertainty, could provide strong tailwinds for aerospace and defense companies well into the future. For traders and long-term investors alike, this may be one megatrend worth watching closely.
