Defense stocks tracked by the SPDR S&P Aerospace & Defense ETF have surged 100% since April 2025 lows, with L3Harris among prime contractors. The rally has been driven by restocking of munitions and elevated geopolitical tensions. L3Harris shares have advanced in line with peers as investors anticipate stronger backlog growth.

The U.S. defense budget has surpassed $1 trillion for fiscal 2026, and discussions at a recent forum suggested potential growth to $1.5 trillion, representing roughly a 50% increase. Commitments by NATO members to spend 3.5% of GDP on defense by 2035 could add $370 billion in non-U.S. spending. These trends underpin long-term revenue visibility for major contractors like L3Harris.

Analysts highlight shipbuilding and air and missile defense systems, including advanced radar and communications projects, as core growth sectors. L3Harris’ order backlog includes electronic warfare and software-enabled battlefield solutions, positioning it to capture increased program awards. Depleted munitions inventories and the push for AI-driven systems further bolster contract pipelines.

Sector valuations have risen alongside the rally, but earnings estimates for prime contractors are also climbing with expanding backlogs. L3Harris trades at a premium to its historical average but remains below some technology peers on a forward margin basis. Continued budget commitments and AI integration present upside catalysts, while federal deficits and shifting geopolitical tensions pose execution risks.