Amid escalating geopolitical tensions, global defense spending reached an all-time high of$2,.72 trillion in 2024, according to the Stockholm International Peace Research Institute (SIPRI). This marks a 9.4% year-over-year increase—the sharpest annual rise since the Cold War era.

The top five spenders—the United States, China, Russia, Germany and India—accounted for 60% of the global defense budget, reflecting a high concentration of military outlays. U.S. military expenditure grew by 5.7%, reaching $997 billion and accounting for 37% of total global defense spending.

Note that global defense spending tends to remain resilient in the coming days — even during tariff-led economic downturns — due to ongoing geopolitical tensions, government commitments, and national security priorities.

Let’s delve a little deeper.

Upbeat Earnings Prospects

Total S&P 500 earnings for the June quarter are expected to be up +5.5% from the same period last year on +3.8% higher revenues. However, there have been pressures on estimates as tariff threats have led companies and analysts to guide lower.

Q2 earnings estimates for 15 of the 16 Zacks sectors are down since the quarter got underway, with Aerospace as the only sector whose estimates have moved higher, as quoted on Earnings Trend issued on May 28, 2025.

All S&P 500 aerospace companies have reported earnings results so far. Earnings of the aerospace sector grew 23.2% in Q1 with 85.7% beat ratio while revenues nudged up 0.2% with a beat ratio of 71.4%.

EU Defense Spending to Rise

Defense spending by European Union (EU) member states is set to increase significantly in the next two years. Goldman Sachs expects the EU to gradually increase its annual defense spending by around €80 billion ($84 billion) by 2027—equivalent to roughly 0.5% of GDP, according to the report dated Feb. 27.

Defense expenditures in the euro area accounted for 1.8% of GDP in 2024 and Goldman Sachs Research expects them to rise to 2.4% by 2027. Germany's military spending jumped 28% to $88.5 billion in 2024, becoming the world's fourth-largest. Sweden, in its first year as a NATO member, hiked defense spending by 34% to $12 billion. Poland increased its budget by 31% to $38 billion.

What Drove Higher Spending?

Amid growing security concerns, global defense spending has been rising since Russia's invasion of Ukraine. Following Russia's invasion, Europe significantly increased its purchases of military equipment from non-EU suppliers.

Despite this, larger EU nations have traditionally relied on domestic companies for defense procurement. Europe’s share of global arms production, fell between 2008 and 2016, but has picked up since then.

All 32 NATO members increased defense budgets in 2024, according to SIPRI, with 18 countries meeting or topping the bloc's 2% of GDP target. Military spending has also surged amid renewed U.S. pressure, with Trump urging NATO to hike defense outlays to 5% of GDP. He also warned of a possible U.S. troop withdrawal from Europe if the bloc fails to meet the higher targets.

Defense & Aerospace Stocks Attract Investor Interest

With military budgets rising worldwide, defense and aerospace stocks are gaining strong traction among investors. Several companies in this sector have posted substantial returns across various timeframes.

The Zacks Aerospace-Defense industry is housed within the broader Zacks Aerospace sector. It currently carries a Zacks Industry Rank #50, which places it in the top 20% of more than 250 Zacks industries. Meanwhile, the aerospace sector carries the best Zacks Sector Rank #1.

Aerospace & Defense Exchange-Traded Funds (ETFs) in Focus

iShares U.S. Aerospace & Defense ETF (ITA Quick QuoteITA - Free Report)

The Dow Jones U.S. Select Aerospace & Defense Index measures the performance of the aerospace and defense sector of the U.S. equity market. The fund charges 40 bps in fees.

Invesco Aerospace & Defense ETF (PPA Quick QuotePPA - Free Report)

The underlying SPADE Defense Index is comprised of approximately 50 U.S. companies whose shares are listed on a U.S. Exchange. These are companies that are principally engaged in the research, development, manufacture, operation and support of defense, military, homeland security and space operations. The fund charges 57 bps in fees.

SPDR S&P Aerospace & Defense ETF (XAR Quick QuoteXAR - Free Report)

The underlying S&P Aerospace & Defense Select Industry Index represents the aerospace & defense sub-industry portion of the S&P Total Stock Market Index. The fund charges 35 bps in fees.

Global X Defense Tech ETF (SHLD Quick QuoteSHLD - Free Report)

The underlying Global X Defense Tech Index seeks to provide exposure to defense technology companies. The fund is heavy on the United States (51.3%), Britain (11.8%) and Germany (10%). The fund charges 50 bps in fees.

Select STOXX Europe Aerospace & Defense ETF (EUAD Quick QuoteEUAD - Free Report)

The underlying STOXX Europe Total Market Aerospace & Defense Index tracks the performance of stocks of Europe-based aerospace and defense companies. The fund charges 50 bps in fees (read: 6 Factors to Play Europe ETFs Now).

First Trust Indxx Aerospace & Defense ETF (MISL Quick QuoteMISL - Free Report)

The underlying Indxx US Aerospace & Defense Index consists of a universe of U.S. companies engaged in business activities associated with certain aerospace and defense sub-themes. The fund charges 64 bps in fees.

Themes Transatlantic Defense ETF (NATO Quick QuoteNATO - Free Report)

The underlying Solactive Transatlantic Aerospace and Defense Index identifies aerospace and defense companies headquartered in North Atlantic Treaty Organization member countries. The fund charges 35 bps in fees.

U.S. Global Technology and Aerospace & Defense ETF (WAR Quick QuoteWAR - Free Report)

The U.S. Global Technology and Aerospace & Defense ETF provides investors access to the global defense sector, including companies in Aerospace & Defense, Semiconductors, Cybersecurity, Data Centres, and Homeland Security from around the world. The fund charges 60 bps in fees.