Defense stocks are on the move after President Trump proposed a jaw-dropping $1 trillion military budget for 2026, the largest defense spending bill in U.S. history.
After the news broke, Morgan Stanley analyst Kristine Liwag upgraded the firm’s defense sector view to “attractive” from “in-line,” citing more clarity for growth following months of uncertainty.
Liwag named Northrop Grumman (NOC) her “top pick,” raising the stock’s price target to $625 from $580. She also upgraded Lockheed Martin (LMT) to overweight with a $575 price target — nearly 20% above today’s price.
“Concerns over the trajectory of U.S. defense spending and potential DOGE headwinds have kept Defense investors largely on the sidelines since the November U.S. election,” she wrote.
“However, as we see more carrots than sticks for the U.S. Defense industry, we upgrade our industry view.”
And while giants like Northrop and Lockheed are obvious beneficiaries, under-the-radar players like Archer Aviation (ACHR) could be among the surprise winners.
Archer’s shift to defense comes at the perfect time
Archer is best known for building eVTOLs (electric vertical takeoff and landing vehicles) for commercial flights. But the company is aggressively expanding into defense, raising $430 million in December to launch its Archer Defense division.
Back then, Archer announced an exclusive partnership with weapons manufacturer Anduril to develop a hybrid gas-and-electric VTOL aircraft for military use.
Two months later, it raised another $300 million to accelerate hybrid aircraft development.
“I believe the opportunity for advanced vertical lift aircraft across defense appears to be substantially larger than I originally expected,” CEO Adam Goldstein said.
“We are raising additional capital to invest in critical capabilities like composites and batteries to help us capture this opportunity.”
Archer’s stock is down 27.7% year-to-date but remains up 82.6% over the past 12 months.
Trump’s $1 trillion budget caught many by surprise, coming just weeks after the Pentagon proposed cutting $50 billion annually over the next five years — an 8% reduction aligned with the Trump-Musk DOGE initiative to rein in government spending.
But as is often the case with Trump, policy reversals come fast.
“Nobody’s seen anything like it,” Trump told reporters last week. “We have to build our military... there are a lot of bad forces out there now.”
Congress is expected to begin budget negotiations in May.
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