Why You Should Avoid Palantir and Buy These 2 Defense Stocks Instead

RTX reported Raytheon Q2 2026 sales of $8.3 billion, up 18% year over year, and holds a $289 billion total backlog, including $119 billion in defense. Northrop Grumman holds a $104.7 billion backlog after $20 billion of Q2 net awards, supported by long-duration B-21 bomber, Sentinel missile, F-35, and interceptor programs. The article argues that RTX and Northrop offer more durable, contract-backed exposure to rising defense spending than higher-valued, software- and AI-focused Palantir.

Analysis

The relevant distinction is not backlog size but backlog quality versus execution risk. RTX’s diversified missile, radar, and aftermarket mix should translate incremental defense appropriations into revenue faster and with less fixed-price program concentration than NOC; its commercial aerospace cash generation also provides a buffer against defense-budget timing. The second-order beneficiaries are missile and propulsion suppliers, notably LHX and HWM, while a sustained munitions-capacity buildout favors GD’s ordnance exposure.

NOC offers greater duration but also greater asymmetric downside from B-21 and Sentinel cost-to-complete revisions. These programs can create decades of follow-on revenue only if early production economics stabilize; a single unfavorable estimate-at-completion adjustment would matter more to EPS and multiple than an incremental backlog award. Over the next 1-3 months, quarterly margin commentary, particularly on classified programs and Sentinel, is the key catalyst; over 6-18 months, congressional appropriations and production-rate decisions determine whether backlog converts at attractive returns.

The apparent PLTR-versus-hardware framing is too simplistic. Defense buyers increasingly procure software as an integration layer around sensors, command-and-control, targeting, and sustainment; PLTR’s valuation risk is real, but hardware primes’ software dependence creates an opportunity for PLTR to win adjacent budgets rather than lose them. Consensus may also be underestimating that a continuing resolution delays new starts and production ramps even while reported backlog remains optically reassuring, favoring firms with funded sustainment revenue over those dependent on new-program milestones.

Key Decisions for Investors

• Prefer long RTX over NOC on a 3-6 month pair-trade horizon. RTX offers cleaner conversion from defense demand plus aerospace cash flow; target 8-12% relative upside, with exit/review if Raytheon segment margin fails to expand sequentially or Pratt-related cash drag reappears.
• Maintain NOC as a watch-list long rather than add aggressively ahead of the next earnings release. Initiate only if management reaffirms B-21/Sentinel estimate-at-completion assumptions and free-cash-flow guidance; a further program charge would invalidate the near-term thesis and could drive 10-15% downside.
• Express a relative valuation view with long RTX / short PLTR only after PLTR rallies into earnings or defense-AI contract announcements. Use a 6-month horizon and size modestly: the trade benefits if procurement shifts toward funded hardware/sustainment, but stop out if PLTR materially raises U.S. government growth guidance or announces a large multi-year program of record.
• Add LHX or GD as diversified defense-spending proxies if appropriations clarity improves. These names provide exposure to communications, sensors, munitions, and platforms with less single-program concentration than NOC; reassess on a continuing resolution or a material defense-topline reduction.