Key Points
The United States, Germany, and many other countries are dramatically increasing their defense spending.
Rheinmetall is a major German and broader European defense contractor with incredible growth figures.
Lockheed Martin is an American defense company that saw a serious surge in profit at the end of 2025.
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Global defense spending is on the rise. The United States alone has a military budget of $838.5 billion for 2026 and President Trump has proposed a $1.5 trillion budget for 2027, almost double 2026's number. But the United States is not alone.
Germany has been increasing its military budget dramatically over the past couple of years, which has made it into the fourth-largest military spender in the world behind only the U.S., China, and Russia. And over the next five years, Germany's Chancellor Friedrich Merz plans to double the country's already enlarged military budget to hit NATO's spending target of 3.5% of GDP.
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With new conflicts breaking out around the world and brewing conflicts continuing to simmer, defense contractors are looking like a good investment over the next several years. The two in this article are some of the best to add to your portfolio right now.
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The German giant
Based in Dusseldorf, Rheinmetall (OTC: RNMBY) has come a long way from the artillery manufacturer it was founded as. Today the company produces everything from trucks and tanks to naval vessels and satellites.
The company produces military equipment for dozens of armies in Europe, including Italy, Ukraine, Netherlands, the United Kingdom, and Germany's own, along with the Lynx IFV, which is being adopted by the United States military along with several European militaries, Indonesia, and Brazil.
On top of that, Rheinmetall sells cutting-edge air defense systems which have become vital in the age of drone warfare. It's even incorporating some of those lessons it learned from the deployment of the Leopard 2 in Ukraine into its next-gen tank, the Panther Kf51.
The Panther comes equipped with an autonomous machine gun mounted to the back of its turret as an anti-drone countermeasure and it can carry up to four HERO 120 loitering munitions to provide some drone support of its own.
And as you might imagine, Germany's surge in defense spending coupled with Europe more broadly shoring up its military capabilities has been good for Rheinmetall.
Per the company's latest results (reported March 11, 2026), Rheinmetall's sales for 2025 totaled 9.9 billion euros, up 29% over 2024, and its operating profit grew 33% to 1.8 billion euros. Rheinmetall also saw its backlog grow 36% with the number of new orders coming in from Germany and around the world. Finally, the company grew its net profit margin considerably in 2025, up to 11.8% from 9.19% in 2024.
With German military spending set to continue growing through the remainder of the decade, I anticipate the next few years will be very good to Rheinmetall.
Air superiority
Lockheed Martin (NYSE: LMT) is in many ways an American parallel to Rheinmetall. It also produces military hardware for every theater of military operations: air, land, sea, space, and cyber warfare.
However, Lockheed Martin has much more of a focus on aerospace, as opposed to Rheinmetall which is much more focused on ground-based equipment.
Lockheed's best-known products are likely the Black Hawk helicopter, the F-16 Falcon, and the F-35 Lighting II fighter jet. In the past it produced the F-22 Raptor which is still in service. But the company also produces numerous radar systems, naval weaponry, and ammunition.
And with the United States looking to increase its already substantial military budget, Lockheed Martin had a pretty great end to 2025.
For the full year, its sales were up 6% over 2024 to $30.25 billion. The company's operating profit fell 17% over the course of 2025 but in the fourth quarter that number picked up considerably. Q4 2025 operating profit was up 80% over Q4 2024. The company also maintains a net profit margin of 6.69% and is projecting 5% sales growth for the whole of 2026.
Lockheed is set for continued, steady growth for the foreseeable future, especially if President Trump can secure his proposed $1.5 trillion military budget.
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James Hires has no position in any of the stocks mentioned. The Motley Fool recommends Lockheed Martin and Rheinmetall. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
