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Special Report
Defense Budget Expansion: 3 Mid-Cap Names in a Sweet SpotReported by Chris Markoch. Article 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 increasing defense spending to $1.5 trillion for 2027 — the largest such request in decades and roughly a 44% boost for the Pentagon. While it’s tempting to link the proposal to the war with Iran, the administration had signaled its push for a larger defense budget before that conflict began. The rationale is both practical and strategic: today’s military infrastructure is not optimally configured for the character of future warfare. Preparing for that future will require more investment in next‑generation shipbuilding and in autonomous defense technologies.
Tesla's most recent SEC filing contains a single line showing $12 billion in revenue from a new venture Elon Musk has been quietly building inside the company — one that has nothing to do with cars, robots, space, or AI.
Blackstone calls the underlying opportunity a $23 trillion market. On July 22, Elon is expected to go public with it. Former hedge fund manager Adam O'Dell says he already knows what's coming — and is sharing the name and ticker of one of his top picks to play it, free. Watch Adam O'Dell's full briefing and claim your free ticker now
That outlook helps explain why defense and aerospace stocks have led the market in 2026, including large contractors like Lockheed Martin (NYSE: LMT) and Northrop Grumman (NYSE: NOC). But there’s also a growing opportunity in mid‑cap defense names with less visibility than those major index constituents, which many investors are still repricing. Kratos Defense: A Pure Play on Autonomous Warfare Growth The push toward unmanned, autonomous capabilities will require both offensive and defensive solutions. Kratos Defense & Security Solutions (NASDAQ: KTOS) operates on both fronts. On the defensive side, Kratos is one of the larger producers of counter‑unmanned aerial systems (C‑UAS). That market is projected to grow from roughly $6.64 billion in 2025 to about $20.31 billion by 2030, a compound annual growth rate near 25%. In March and April 2026, the company announced contract awards that together exceed one‑third of its fiscal 2025 (FY2025) revenue of $1.35 billion. On offense, Kratos’ XQ‑58 Valkyrie has been adopted by the U.S. Marine Corps, which continues to procure additional Valkyries and could push Kratos toward a program‑of‑record designation with the Department of Defense. KTOS is down about 40% from its year‑to‑date high, with institutional selling outpacing buying. Still, analysts project earnings growth of roughly 38% and continue to raise price targets. That creates a more attractive entry point for a stock that is nonetheless up more than 100% over the past 12 months. Leidos: Software and Cybersecurity Powering Modern DefenseThe need for offensive and defensive solutions extends to software as well as hardware. Leidos (NYSE: LDOS) represents the software and services side of modern defense, focusing on government IT modernization, cybersecurity, engineering and mission‑critical systems, as well as analytics and professional services. In 2025 Leidos won a multi‑year contract with the U.S. Transportation Security Administration; the company’s Q4 2025 earnings report showed how near‑term disruptions can affect results. Leidos missed revenue expectations in that quarter largely because of a six‑week government shutdown in 2025. 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 — a move aimed at expanding production capacity and upgrading classified facilities. That spending plan comes as LDOS is about 20% below its YTD high amid concerns that advances in artificial intelligence could disrupt cybersecurity dynamics. Analysts have trimmed some targets, though the consensus price target for LDOS is $208.27, more than 30% above the stock’s mid‑April price. Huntington Ingalls: Shipbuilding Strength Meets Next-Gen TechHuntington Ingalls (NYSE: HII) combines traditional shipbuilding expertise with next‑generation technology. The company’s core shipbuilding capabilities align closely with America’s Maritime Action Plan (MAP), a broad effort to expand and modernize U.S. shipbuilding capacity. Even before MAP, Huntington Ingalls was forecasting up to $50 billion in new government contract opportunities over the next 24 months. For context, the company generated just over $12 billion in revenue in 2025. At the same time, Huntington Ingalls has been building out a Mission Technologies segment — including AI, cyber defense and unmanned systems — that made up about one‑quarter of revenue in 2025 and is expected to grow. 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 targets ahead of the company’s May 7 earnings report, suggesting additional upside as institutional interest grows (see institutional ownership). |
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