Key Points
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Record global defense spending is creating a long-term growth runway for financially strong defense contractors.
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General Dynamics, Northrop Grumman, and Curtiss-Wright combine healthy balance sheets with expanding defense backlogs.
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Investors should balance powerful spending tailwinds against elevated valuations, political uncertainty, and execution risks.
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The world is arming up at a pace not seen in decades. Global military spending reached a record $2.9 trillion in 2025, NATO’s combined defense budgets topped $1.5 trillion for the first time in 2026, and members have committed to a path toward spending 5% of their gross domestic product (GDP) on defense. Europe alone lifted spending by double-digit percentages, the fastest growth since the Cold War. That flood of money flows to the companies that build the ships, planes, and systems, and the ones best positioned to capture it are those with the financial strength to expand. Here are three defense contractors with solid balance sheets and clear momentum.
1. General Dynamics
General Dynamics (NYSE: GD) is the most diversified of the group, spanning nuclear submarines, combat vehicles, government IT, and Gulfstream business jets. That mix matters because it gives the company multiple ways to grow as budgets rise at home and abroad.
The balance sheet is heading in the right direction. General Dynamics finished its most recent quarter with about $3.7 billion in cash, and net debt fell to roughly $4.4 billion from $5.7 billion at the end of 2025, meaning the company is paying down borrowings while still investing. Its total order backlog hit a record near $131 billion, with total potential contract value closer to $188 billion, and revenue for its Marine Systems unit, which builds submarines, rose 21% as the U.S. races to expand its undersea fleet. With a genuine cash engine and shrinking debt, General Dynamics can fund shipyard expansion while rewarding shareholders.
2. Northrop Grumman
Northrop Grumman (NYSE: NOC) sits at the center of the highest-priority programs in defense, including the B-21 Raider stealth bomber, space systems, and missile defense, all areas that swell when threats rise. Its order backlog stands at a record of roughly $96 billion, giving it years of visible work.
The financial picture here comes with a nuance worth understanding. Northrop generated strong free cash flow of about $3.3 billion in 2025, but it is now plowing money into expanding B-21 production, committing to a multiyear capital investment plan of about $2.5 billion after agreeing to boost bomber capacity by 25%. That heavy spending can make near-term cash flow uneven, yet it is the kind of investment that builds future earnings. Management reaffirmed full-year projections calling for free cash flow of roughly $3.1 billion to $3.5 billion, indicating that underlying cash generation remains healthy even as it invests for growth.
3. Curtiss-Wright
Curtiss-Wright (NYSE: CW) is the smallest and least famous of the three, and it may have the cleanest balance sheet. It makes specialized defense electronics, actuation systems, and the nuclear technology that powers submarines and aircraft carriers, giving it a quiet but critical role in the naval build-out.
Curtiss-Wright carries roughly $958 million in total debt against about $371 million in cash and short-term investments, and its net debt sits at a conservative level relative to its equity. Just as important, it converts more than 105% of its earnings into free cash flow, and it recently raised its cash flow outlook toward the $580 million to $600 million range. New orders climbed 16%, and its order backlog reached about $4.3 billion, with roughly 90% of that expected to turn into revenue during the next three years. That is a durable, low-leverage business riding the same demand wave as its larger peers.
Defense investing is not without pitfalls. These stocks have run up as investors piled onto the rearmament theme, so valuations are no longer cheap. Budgets ultimately depend on politics, and appropriations can be delayed, trimmed, or redirected, especially in the U.S. Big programs like the B-21 also carry execution risk, and heavy upfront spending can pressure profits before it pays off.
The takeaway for investors
Rising global military budgets are a powerful and durable tailwind, but the companies that win will be the ones with the cash and balance sheets to scale into the demand. General Dynamics offers diversification and a strengthening balance sheet; Northrop Grumman offers exposure to the most critical programs while investing for growth; and Curtiss-Wright offers low-leverage, high-quality cash generation. I would treat all three as ways to invest in a lasting trend, while keeping valuation and political risk in view.
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Micah Zimmerman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Curtiss-Wright. The Motley Fool has a disclosure policy.
