The global arms industry is experiencing a period of unprecedented demand driven by multiple simultaneous conflicts and a surge in defence spending across NATO, the Indo-Pacific and the Middle East. Companies that design, manufacture and maintain weapons systems, ammunition, military vehicles, aircraft, warships and cybersecurity systems are reporting record revenues, expanding production capacity and hiring extensively. For investors and business analysts, the defence sector presents one of the most significant growth stories of the mid-2020s.
Global Defence Market Size
Global military expenditure reached a record $2.44 trillion in 2023, according to the Stockholm International Peace Research Institute (SIPRI) — the highest level ever recorded and the ninth consecutive annual increase. The United States remains by far the world’s largest defence spender at approximately $886 billion — more than the next ten countries combined. China comes second at approximately $296 billion, though actual Chinese military spending is widely believed to exceed official figures. Russia, despite economic sanctions and the costs of the Ukraine war, has dramatically increased its defence spending as a proportion of GDP. European NATO members have collectively added hundreds of billions of dollars to their defence budgets since Russia’s invasion of Ukraine.
The Big American Defence Contractors
The five largest American defence contractors — Lockheed Martin, Boeing Defense, Raytheon Technologies (now RTX), Northrop Grumman and General Dynamics — collectively generate revenues exceeding $200 billion annually and employ hundreds of thousands of people. Lockheed Martin, the world’s largest defence company, generated revenues of approximately $67 billion in 2023 primarily from its F-35 fighter jet programme, missile defence systems and military satellites. RTX, formed from the merger of Raytheon and United Technologies, produces the Patriot missile system and Javelin anti-tank missiles — two of the most in-demand weapons systems in the current conflict environment.
These companies’ share prices have significantly outperformed broader market indices since Russia’s invasion of Ukraine. Northrop Grumman, the maker of the B-21 Raider stealth bomber and a key player in America’s nuclear weapons modernisation programme, has seen its shares more than double since 2022. The narrative is straightforward: governments are spending more on defence and have long-term procurement commitments that provide revenue visibility for years into the future.
European Defence Industry Boom
Germany’s Rheinmetall, previously known primarily as a manufacturer of automotive components, has been the most dramatic stock market beneficiary of the European rearmament surge. As the maker of the Leopard tank, Lynx infantry fighting vehicle and a major ammunition producer, Rheinmetall has seen its share price rise by several hundred percent since 2022. The company’s CEO has become a regular presence in European defence policy discussions, and the German government has committed to significantly expanding domestic ammunition production capacity.
Britain’s BAE Systems, France’s Thales and Italy’s Leonardo have all reported significant increases in order intake and revenues. MBDA, the European missile consortium, is operating at or near full production capacity for its Milan, Brimstone and Meteor missile systems. The ammunition production bottleneck — a shortfall that became embarrassingly apparent when European stocks were drawn down to support Ukraine — has prompted massive investment in new production facilities across the continent.
India’s Defence Industry Opportunity
India’s defence sector is experiencing its own transformation, driven by Prime Minister Modi’s “Make in India” initiative and ambitious Indigenisation targets for defence procurement. The government has set targets for 70% domestic content in defence procurement and has established a significant Defence Acquisition Procedure that prioritises Indian manufacturers. Tata Advanced Systems, Mahindra Defence, Larsen and Toubro, Bharat Electronics Limited and Bharat Dynamics Limited are among the Indian companies that have benefited from this push.
India’s defence exports have grown dramatically from a negligible base to over $2 billion annually, with ambitions to reach $5 billion by the end of the decade. The Brahmos supersonic cruise missile — developed jointly with Russia — has attracted significant export interest from countries including the Philippines, Vietnam and several others, providing a glimpse of what India’s defence industry could become as it scales up.
The Ammunition Shortage Crisis
One of the most consequential and under-discussed consequences of the current wave of conflicts is a global shortage of artillery ammunition and missiles. Western stockpiles, built during the Cold War for a different type of warfare, have been significantly drawn down by transfers to Ukraine. Production capacity — which was cut dramatically after the Cold War as governments pursued “peace dividends” — cannot be scaled up overnight. Artillery shells that took 20 years of decline in production capacity to exhaust cannot be replaced by building new factories in twelve months. The ammunition shortage has created both a military vulnerability and an extraordinary business opportunity for manufacturers with the capacity to expand production.