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Exclusive News
Defense Budget Expansion: 3 Mid-Cap Names in a Sweet SpotAuthor: Chris Markoch. Date Posted: 4/20/2026. 
Key Points
- A proposed surge in defense spending is accelerating demand for next-generation military technologies.
- Mid-cap defense companies offer growth potential as they gain contracts and visibility.
- Autonomous systems, cybersecurity, and shipbuilding are key themes driving long-term upside.
- Special Report: Have $500? Invest in Elon’s AI Masterplan
In early April, the Trump administration proposed an increase in defense spending to $1.5 trillion for 2027. This was the largest such request in decades and would mark a 44% increase for the Pentagon. At first glance, it is easy to link this request to the Iran war. However, the administration had signaled a desire for a larger defense budget before that conflict began. The reason is both practical and strategic: the current military infrastructure is not well-suited for the nature of future warfare — or at least not as well-suited as it could be. Preparing for that future will require more investment in next-generation shipbuilding as well as in autonomous defense solutions.
The mainstream explanation for the Iran airstrikes may not be the full story. Addison Wiggin, Founder of Grey Swan Investment Fraternity, says there's a deeper motive behind the bombing campaign that most coverage is ignoring.
If you're making investment decisions based on what you're hearing in the news, Wiggin argues you could be working with an incomplete picture. Read Addison Wiggin's full breakdown of the real Iran story
This is a principal reason why defense and aerospace stocks have led the market higher in 2026, including big names like Lockheed Martin (NYSE: LMT) and Northrop Grumman (NYSE: NOC). However, there’s a growing opportunity in mid-cap stocks that have less visibility than their major index counterparts, which are still being repriced. Kratos Defense: A Pure Play on Autonomous Warfare GrowthThe push for unmanned autonomous technology in the defense sector will require both offensive and defensive solutions. Kratos Defense & Security Solutions (NASDAQ: KTOS) operates in both areas. On the defensive side, Kratos is one of the largest producers of counter-unmanned aerial systems, or C-UAS. That market is projected to grow from roughly $6.64 billion in 2025 to about $20.31 billion by 2030, representing a compound annual growth rate near 25%. In March and April 2026, the company announced contracts totaling more than one-third of its fiscal year 2025 (FY2025) revenue of $1.35 billion. On the offensive front, Kratos’ XQ-58 Valkyrie has been adopted by the U.S. Marine Corps, which continues to procure more Valkyries and could move Kratos closer to becoming a program of record for the Department of Defense. KTOS is down about 40% from its year-to-date (YTD) high, with institutional selling outpacing buying. However, analysts are projecting earnings growth of around 38% and have been raising price targets. That makes now a more attractive entry point for a stock that is still up more than 100% over the last 12 months. Leidos: Software and Cybersecurity Powering Modern DefenseThe need for offensive and defensive solutions applies to software as well as hardware. Leidos (NYSE: LDOS) represents the software side of the modern defense industry. The company focuses on modernizing U.S. government IT systems, cybersecurity, engineering, and professional services, with offerings across IT, analytics, and mission-critical systems. In 2025, Leidos was awarded a multi-year contract with the U.S. Transportation Security Administration. That contract — along with a six-week government shutdown in 2025 — contributed to the revenue shortfall reported in the company’s Q4 2025 earnings report. Looking ahead, management has pointed to the Golden Dome project as a potential catalyst in 2026 and beyond. The company also plans to roughly triple capital expenditures to $350 million, which appears to be a prudent investment to expand production capacity and upgrade classified facilities. Still, LDOS is down about 20% from its YTD high amid investor concern that advances in artificial intelligence (AI) could disrupt cybersecurity vendors. Analysts have trimmed targets, but the consensus price target for LDOS is $208.27, roughly 30% above the stock’s mid-April price. Huntington Ingalls: Shipbuilding Strength Meets Next-Gen TechHuntington Ingalls (NYSE: HII) blends traditional shipbuilding expertise with newer technologies. The company’s shipbuilding capabilities align with America’s Maritime Action Plan (MAP), a sweeping blueprint to update and expand U.S. shipbuilding capacity. Even before the MAP announcement, Huntington Ingalls was forecasting up to $50 billion in new government contracts over the next 24 months. For context, the company generated just over $12 billion in revenue in 2025. Huntington Ingalls is also growing its Mission Technologies segment, which includes AI, cyber defense, and unmanned systems. That segment represented about a quarter of the company’s revenue in 2025 and is expected to expand in the coming years. HII is the momentum pick in this group. The stock is up about 15% in 2026 and is trading slightly above its consensus price target of $383.22. Analysts have been raising their targets ahead of the company’s May 7 earnings report, suggesting there could be additional upside for a stock that is attracting significant interest from institutional investors. |
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