Five charts that show the rise of global militarisation

Global military spending reached a record $2.88 trillion in 2025, up 2.9% year over year and equal to about $350 per person worldwide. The US remains the dominant spender at $954bn and the largest arms exporter at 39% of global exports, while Europe’s military spending has doubled since 2016 and Eastern Europe is up 173%. The article also highlights a growing shift toward AI-enabled warfare, including Pentagon contracts for OpenAI, xAI and Anthropic.

Analysis

The durable trade here is not just higher defense budgets; it is a structural reallocation toward systems with the highest software, autonomy, and munitions content. That favors primes with differentiated electronics, missile defense, and C2/ISR exposure over legacy airframes, while also lifting the entire supplier stack for energetics, semiconductors, and secure communications. The second-order winner is whoever can scale production fastest under budget urgency, which should keep backlog conversion and pricing power strong even if headline spending growth moderates.

The biggest underappreciated risk is that this is a multi-year fiscal squeeze, not a pure growth story. Defense outlays are rising into a world where healthcare and education budgets are politically sticky, so the limiting factor is not intent but funding capacity; that creates periodic procurement pauses, program delays, and headline risk around deficit hawks. Near term, the market may be overemphasizing platform builders and underpricing the beneficiaries of replenishment cycles, since munitions and air-defense inventory drawdowns typically require faster restocking than new aircraft or ships.

Palantir is the most fragile exposure in the group: it is the purest AI-defense proxy, but its multiple already embeds a lot of militarization optionality, while incremental contract wins can be lumpy and politically sensitive. By contrast, the market still appears to underweight the compounding effect of European rearmament and Indo-Pacific procurement on multi-year order visibility for diversified primes. If geopolitical temperature cools, the first thing to compress is premium valuation on “AI defense” names; if it rises, the higher beta comes from munitions and missile-defense, not from long-duration software narratives.

Key Decisions for Investors

• Long LMT / short PLTR for the next 3-6 months: prefer a cash-generative prime with durable backlog over a sentiment-driven AI-defense multiple; target relative outperformance if defense procurement broadens but hype cools.
• Add RTX and NOC on weakness over 1-2 quarters: both have cleaner exposure to missile defense, sensors, and replenishment demand; risk/reward improves if Congress funds inventory recapitalization faster than new platform builds.
• Long GD vs BA as a quality pair trade into any European rearmament headline: GD should capture steadier defense capex while BA remains exposed to commercial execution and balance-sheet noise.
• Use LMT/RTX call spreads on 6-12 month tenor instead of outright equity longs: captures upside from sustained budget growth while limiting downside if fiscal tightening slows contract awards.
• Avoid or reduce PLTR on strength; if you want AI-defense exposure, wait for a 15-20% pullback or pair it long against a lower-multiple defense prime to isolate valuation risk.