​​Defense Stocks Back in Focus
Amid Israel-Iran Conflict

Defense stocks have been one of the best-performing areas of the market in 2025. With many NATO countries announcing increased defense budgets on the back of concerns in relation to US commitment to collective defense, valuations across the industry have risen significantly. Now, however, a new geopolitical event is putting the spotlight on these stocks and that is the conflict between Israel and Iran. This conflict – which has sadly led to the loss of hundreds of lives – could potentially boost demand for defense capabilities across the Middle East and further fuel the industry’s growth.

A Dangerous Escalation

The current conflict began on June 13 when Israel launched "Operation Rising Lion" – a large-scale military attack on Iran. Viewed as a “preventive” measure by the Israeli government, the attack was designed to stop Iran from developing nuclear weapons and thereby enhance Israel’s long-term security. Strikes, which were carried out by the Israel Defense Forces (IDF) and the Institute for Intelligence and Special Operations (Mossad), were primarily aimed at key nuclear sites such as the Natanz Nuclear Facility and Isfahan's Uranium Conversion Facility. However, Israel also hit missile complexes, military bases, Islamic Revolutionary Guard Corps (IRGC) facilities, and public infrastructure across Iran.

In retaliation, Iran immediately launched ballistic missiles and drones back at Israel. These attacks targeted military sites, intelligence sites, and residential areas in cities such as Tel Aviv and Haifa. Iran also threatened to target the military bases of other countries such as the US, the UK, and France if these countries provide assistance to Israel. Days after the initial attack, the situation remains highly volatile – with both sides continuing to exchange strikes and warnings – and it has raised concerns about the potential for a wider regional war, as well as the potential for global economic repercussions.

What the Conflict Means for Defense Stocks

Naturally, defense stocks are back in focus after this intense geopolitical flare up. Amid this conflict, there is the expectation of increased spending on weapons, surveillance systems, and other military technologies for national security. In this case, both Israel and Iran will likely seek to bolster their defense capabilities, as will other nations in the region and globally. Note that Israel’s Operation Rising Lion – which involved more than 200 fighter jets¹ – would have consumed a significant amount of precision-guided munitions, bombs, and air-to-ground missiles, meaning that the country will almost certainly need to restock its defense munitions, and probably at an accelerated pace.

This conflict also highlights the need for advanced military technologies today. Examples here include missile detection and defense systems, drone technology, space-based defense, and AI-based cybersecurity solutions. In today’s age of advanced warfare, military superiority increasingly hinges on a technological edge and the ability to seamlessly integrate these cutting-edge capabilities into defense strategies. So, companies specializing in these areas of defense could potentially be well-positioned for growth.

It’s worth pointing out that during periods of military conflict, defense stocks can sometimes benefit from perceived “safe-haven” status. One reason for this is that these stocks may be able to offer protection from any economic shocks that arise as a result of geopolitical conflict (e.g. oil price spikes). Defense stocks may also be seen as relatively stable due to their reliance on long-term government contracts, which make them less susceptible to short-term economic downturns. Ultimately, these stocks can be both offensive and defensive in nature.

3 Stocks to Watch

While the current conflict could have ramifications for a range of defense companies, some that we believe are worth highlighting include:

• RTX (7.47%*) – RTX is a major player in missile defense, manufacturing sophisticated systems such as the Patriot and the Iron Dome. It also produces a wide range of missiles, including AMRAAMs (Advanced Medium-Range Air-to-Air Missiles), anti-tank missiles, and Tomahawk cruise missiles. Additionally, RTX is a leader in advanced radar technology, producing systems such as the SPY-6 family of radars and the AN/TPY-2 missile defense radar. These systems are vital for detecting and tracking incoming threats like ballistic missiles and drones, which are central to the current conflict.

• Rheinmetall (4.97%*) – With many nations looking to replenish or expand their arsenals, demand for ammunition and missile components could be set to rise. This may benefit Rheinmetall, which is one of the largest ammunition manufacturers in Europe. Rheinmetall could also potentially benefit from high demand for air defense systems. It’s a global leader in automatic cannon-based air defense, offering comprehensive systems such as its Skyranger for protection against airborne threats such as drones and missiles.

• Lockheed Martin (6.04%*) – Israel's F-35 fleet is a cornerstone of its air superiority and Lockheed Martin is the prime contractor here. So, it may benefit from replenishment of parts and maintenance. Lockheed Martin also offers Multiple Launch Rocket Systems (which are used by IDF ground forces) and precision-guided munitions. These may see higher demand as countries move to boost their defense capabilities.

*% weighting in the Themes Transatlantic Defense ETF (NATO)**, as of June 17, 2025
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Defense Stocks Are Hard to Ignore in 2025

In summary, the Israel-Iran conflict adds another layer of urgency to global defense spending, which was already on an upward trend due to the war in Ukraine and concerns over US commitment to NATO protection. So, it’s no surprise that defense stocks are once again in the spotlight. In the current environment, defense is one of the most relevant sectors in the market meaning that it is hard to ignore. Offering potential for both growth and stability, it could be worth a closer look today.

Footnotes:

**The Themes Transatlantic Defense ETF seeks to track the Solactive Transatlantic Aerospace and Defense Index (SOLNATON), which identifies aerospace and defense companies headquartered in North Atlantic Treaty Organization (NATO) member countries.

¹JNS, For the first time, 200 fighter jets took off in unison, as of June 13, 2025