Global defense spending hits record $2.9T as satellite and drone names join the primes

Global defense spending has reached record levels and, just as importantly, it is broadening well beyond the handful of prime contractors that have long dominated the industry. Worldwide military expenditure hit roughly 2.89 trillion dollars in 2025, an 11th consecutive year of growth, and United States spending approved for 2026 has climbed above 1 trillion dollars with the potential to reach 1.5 trillion dollars in 2027. The clearest evidence of how the money is spreading came this week from Planet Labs PBC (NYSE: PL), the satellite imaging company, which reported record quarterly revenue of 94.2 million dollars, up 42 percent year over year, as its defense and intelligence revenue surged more than 65 percent and its backlog jumped 72 percent to over 906 million dollars. Meanwhile traditional primes such as RTX Corporation (NYSE: RTX) continue to win contracts as the Pentagon rebuilds missile stockpiles depleted during the war with Iran. The defense trade has split into two tracks: established platform makers and a newer cohort of space, software, and autonomy companies that barely existed as an investable category five years ago.

How big is the global defense spending surge and what is driving it to records?

The numbers mark a generational shift in military budgets. According to the Stockholm International Peace Research Institute, global military spending rose to about 2.89 trillion dollars in 2025, pushing the world’s military burden to 2.5 percent of GDP, the highest level since 2009. It was the 11th straight year of increases, driven by what the institute described as another year of wars, uncertainty, and geopolitical upheaval.

The drivers are concentrated but powerful. Russia’s ongoing war in Ukraine, the United States and Israeli conflict with Iran, and rising tensions across Asia have all fueled the surge, prompting nations to expand budgets and rebuild capabilities. The United States remained the largest spender at roughly 954 billion dollars even after a temporary dip, while China increased spending to an estimated 336 billion dollars and Russia reached 190 billion dollars, equal to 7.5 percent of its economy.

The trajectory points sharply higher. Spending approved by the United States Congress for 2026 has risen above 1 trillion dollars, a substantial jump, and could climb toward 1.5 trillion dollars in 2027 if the latest budget proposal is adopted. With NATO members having pledged to lift defense spending toward 5 percent of GDP over the next decade, the structural tailwind behind the sector is measured in years, not quarters.

Why is defense spending broadening beyond the traditional prime contractors?

The spending now moves along two distinct tracks. The first is the traditional one, where prime contractors like Lockheed Martin, RTX, Northrop Grumman, and General Dynamics collect the bulk of multi-decade platform contracts spanning fighter jets, submarines, ballistic missile defense, and tactical missiles. This is the established core of defense investing.

The second track is genuinely new. A layer of capabilities that did not exist as an investable category five years ago, including drones, counter-drone systems, AI-enabled targeting, satellite-based intelligence, surveillance and reconnaissance, and cyber, has become central to modern warfare. The conflicts in Ukraine and the Middle East have demonstrated that cheap drones, real-time satellite imagery, and software-driven targeting can be as decisive as expensive legacy platforms.

This broadening reshapes where the growth accrues. Militaries are prioritizing speed, data, and autonomy alongside traditional hardware, channeling budgets toward technology firms and new entrants rather than solely toward the primes. For investors, it means the defense opportunity now spans both the companies replenishing missile stockpiles and a fast-growing cohort of space and software names capturing the modernization of warfare.

How does Planet Labs’ record quarter show the new defense-tech track in action?

Planet Labs is a textbook example of the second track. The company operates a constellation of satellites that provide daily imagery and geospatial intelligence, and its record first-quarter revenue of 94.2 million dollars, up 42 percent, was driven overwhelmingly by defense and intelligence demand, which surged more than 65 percent year over year. Government and defense customers are paying for the persistent, AI-enhanced Earth observation that modern conflicts require.

The forward indicators underscore the momentum. Planet’s backlog climbed 72 percent to more than 906 million dollars and its remaining performance obligations rose 81 percent to 816 million dollars, with recurring contract value at 99 percent, signaling durable, subscription-like demand. The company raised its full-year revenue guidance and ended the quarter with a fortress balance sheet of 731 million dollars in cash, up 223 percent.

The quarter also illustrated the sovereignty trend. Planet launched three of its high-resolution Pelican satellites, including what it described as Sweden’s first sovereign reconnaissance satellite, a concrete example of European nations investing in their own independent intelligence capabilities amid the rearmament drive. Notably, the stock still slipped after the report, weighed down by a softer margin outlook and a space sector preoccupied with the looming SpaceX initial public offering, a reminder that even strong defense-tech results face their own market dynamics.

Why are the primes like RTX still winning as stockpiles are replenished?

The primes remain central, particularly for munitions. RTX, a leading missile maker, has benefited as the United States military replenishes stockpiles after expending large numbers of expensive interceptors and missiles during the war with Iran. The company recently secured a contract modification worth more than 500 million dollars for its naval radar work, and its shares rose as investors focused on the replenishment cycle.

Stockpile rebuilding is a powerful near-term driver. The Pentagon announced framework agreements designed to accelerate production of precision strike missiles, interceptor components, and other munitions, reflecting an urgent need to restore inventories drawn down by recent conflicts. This translates into sustained, high-visibility demand for the missile and defense electronics makers among the primes.

The platform franchises also endure. Beyond munitions, the primes hold decades-long programs in combat aircraft, naval vessels, and missile defense systems that generate stable, long-dated revenue, and engine programs tie companies like RTX and GE Aerospace to both military and commercial aerospace demand. The first track has not weakened; rather, the second track has been added alongside it, expanding the overall opportunity set.

How does European rearmament reshape the defense investment landscape?

Europe has become the epicenter of the spending surge. European military expenditure jumped 14 percent in 2025 to 864 billion dollars, lifting the region to more than 21 percent of the global total, up from 17 percent in 2022. Germany increased spending sharply to exceed NATO’s 2 percent of GDP guideline for the first time since 1990, while Spain’s spending rose by roughly half.

The commitment is structural and large. NATO members have set a long-term goal of raising defense and security spending toward 5 percent of GDP, an expansion that analysts estimate could add hundreds of billions of euros in annual European spending by the mid-2030s. This historic buildout is reshaping Europe’s defense industrial base and creating demand that flows to both European manufacturers and the technology layer.

The investment implication is geographic and technological diversification. European rearmament benefits domestic champions such as Rheinmetall, BAE Systems, and Thales, as well as the software and autonomy names that modern militaries increasingly prioritize. Funds and investors seeking exposure to this wave have looked beyond United States primes toward a broader basket spanning European manufacturers, satellite intelligence providers, and AI-driven defense software, reflecting the same broadening visible in Planet’s results.

What risks and nuances should defense investors weigh in this cycle?

The first nuance is that strong demand does not guarantee strong stock performance. Planet Labs reported a record quarter and raised guidance, yet its shares fell on a softer margin outlook and sector-specific dynamics, illustrating that valuation, profitability, and market sentiment still matter even amid a powerful demand backdrop. Many defense-tech names are richly valued and remain unprofitable or thinly profitable.

The second consideration is policy and budget dependence. Defense revenue ultimately hinges on government budgets and procurement decisions, which can shift with elections, fiscal pressures, and changing strategic priorities. The United States temporarily reduced spending in 2025 amid a pause in Ukraine assistance, a reminder that even a structural uptrend can have meaningful year-to-year volatility, and procurement reforms could redirect where money flows.

The third factor is execution and competition. None of this is investment advice, and the record spending and broadening demand are real and durable trends. But companies must execute, whether that means the primes scaling munitions production or new entrants like Planet scaling satellite services profitably, and the influx of capital is drawing intense competition into drones, space, and defense software. For investors, the cycle offers a wide opportunity set, but the broadening of spending also means the winners will be determined as much by execution and valuation discipline as by the rising tide of budgets.

Key takeaways on the broadening defense spending cycle

• Global military spending reached a record 2.89 trillion dollars in 2025, an 11th straight year of growth, with United States 2026 spending above 1 trillion dollars.
• The spending is broadening across two tracks: traditional primes and a newer layer of drones, satellite intelligence, AI, and autonomy.
• Planet Labs reported record revenue up 42 percent, with defense and intelligence revenue surging more than 65 percent and backlog up 72 percent to over 906 million dollars.
• Planet raised full-year guidance and launched three Pelican satellites, including Sweden’s first sovereign reconnaissance satellite.
• RTX and other primes continue to win contracts as the Pentagon rebuilds missile stockpiles depleted during the war with Iran.
• European military spending jumped 14 percent to 864 billion dollars, with Germany exceeding NATO’s 2 percent guideline for the first time since 1990.
• NATO members have pledged to raise defense spending toward 5 percent of GDP, a structural tailwind lasting years.
• The new defense-tech track benefits satellite, drone, AI, and software names alongside European manufacturers like Rheinmetall and Thales.
• Strong demand does not guarantee strong stocks, as Planet’s post-earnings dip on margins and sector dynamics showed.
• Budget dependence, policy shifts, execution, and valuation discipline remain key risks even amid a powerful spending uptrend.