NATO's Defense Budget Expansion Fuels Global Spending Growth

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In the 1980s, President Ronald Reagan initiated of one of the most significant military expansions in U.S. history.

In an effort to surpass the Soviet Union, Reagan increased the military budget from just under US$150 billion in 1980 to more than US$300 billion by 1985. The U.S. government's investments included B-1 bombers, MX missiles, and a larger Navy fleet. Reagan held the conviction that peace was attainable only through strength, a stance that history later validated as the U.S. outspent, out innovated, and ultimately outlasted the Soviets.

Now Reagan's approach appears to be playing out in contemporary times on the world stage, US Global ETFs reported on July 1.

At the recent NATO summit in The Hague, the 32-member alliance resolved to increase defense spending to 5% of GDP by 2035, setting a minimum of 3.5% for "core military needs." This commitment represents a significant escalation from the 2% goal established in 2014, the website said.

Several NATO nations are not waiting until 2035 to begin their ramp-up. Poland, for instance, is already allocating over 4% of its GDP to defense, the highest among the alliance members.

Germany has committed to reaching a 3.5% spending level by 2029, even amending its constitutional debt limitations to facilitate this increase. Meanwhile, the UK has recently committed to purchasing a dozen nuclear-capable F-35A jets, representing its most significant nuclear deterrent enhancement since the Cold War era.

"It's not difficult to see why this spending spree is happening now," US Global ETFs noted in its report. "The world is getting more dangerous. According to the 2025 Global Peace Index, there are 59 active state-based conflicts globally, the highest number since World War II."

Unprecedented '$1 Trillion' Defense Budget for US

In June, the U.S. Defense Department unveiled its fiscal 2026 budget, announcing a request for US$961.6 billion. However, specifics on how it intends to sustain these expenditure levels in future years were not provided, according to a report for Breaking Defense by Ashley Roque and Valerie Insinnaon on June 26.

"This historic defense budget prioritizes strengthening homeland security, deterring Chinese aggression in the Indo-Pacific, revitalizing the US defense industrial base, and maintaining our commitment to being good stewards of taxpayer dollars," a senior defense official told reporters.

The Trump administration is aiming to elevate national security spending to an unprecedented "$1 trillion." Achieving this target relies on Congress approving a reconciliation bill that includes US$150 billion earmarked for national security, with the Pentagon planning to allocate US$113.3 billion of this in FY26. The senior defense official did not reveal the department's contingency plan should Congress fail to pass the reconciliation bill.

The evolving dynamics of warfare continue to prompt global changes in defense procurement, reported the Times of Israel and Reuters on July 8.

Western military forces are increasingly seeking technology that has been tested and refined on the battlefield by soldiers. In Israel, approximately 20% of reservists are employed in the thriving high-tech industry. Over a third of all defense technology startups registered with Startup Nation Central, a body that monitors Israeli innovation, registered since the Hamas terror attack in 2023, which initiated the Gaza war,

"Reservists are coming out of the battlefield and are actually putting together new companies to solve real problems that they have experienced in real-time on the battlefield," Leshem explained to Reuters.

Sectors Could Break Out

An exchange-traded fund focusing on aerospace and defense stocks in Europe saw a significant rise this week, even as the broader U.S. stock market experienced a decline, continuing its substantial growth in 2025. The Select STOXX Europe Aerospace & Defense ETF climbed 1.7% in early afternoon trading, while its American counterpart, the iShares U.S. Aerospace & Defense ETF, saw a modest increase of 0.2%, according to the latest FactSet data, MarketWatch's Christine Idzelis reported on Tuesday.

Analysts from JPMorgan Chase & Co. expressed in a global equity strategy note on Monday their ongoing preference for an overweight position in aerospace and defense, pointing to the ongoing need for increased defense spending by European nations. "A potential ceasefire in Ukraine could introduce some temporary fluctuations in the sector, but these should likely be capitalized on," the analysts noted, according to Idzelis.

The performance of the Select STOXX Europe Aerospace & Defense ETF has been particularly striking, soaring about 75% this year, as per the latest data from FactSet. This substantial increase sharply outpaces the nearly 29% rise seen in the iShares U.S. Aerospace & Defense ETF and far exceeds the S&P 500’s year-to-date gain of approximately 5.8% as of Monday afternoon.

According to Precedence Research, sectors like the global coated fabrics for defense market size accounted for US$5.58 billion in 2024 and is predicted to increase from US$5.87 billion in 2025 to approximately US$9.21 billion by 2034, expanding at a CAGR of 5.14% from 2025 to 2034.

"The increasing defense budget boosts the growth of the market," researchers noted. "Furthermore, many countries are proactively advancing their military capabilities, which is expected to boost the growth of the market during the forecast period."

Canada, facing calls to increase its military expenditures, committed in June to enhance its defense budget and achieve NATO's 2% military spending target this fiscal year, a goal it has reached five years ahead of schedule, wrote Wa Lone for Reuters. Prime Minister Mark Carney also indicated that Canada might allocate a higher percentage of its GDP to defense in the future, citing the necessity to update aging equipment and lessen its dependence on the United States. "Now is the time to act with urgency, force, and determination," Carney stated during a speech in Toronto, reaffirming commitments to strengthen collaboration with Europe's defense sector.

U.S. Global Technology and Aerospace & Defense ETF

Amidst ongoing conflicts in Central Asia and the Middle East and such global increases in defense spending there are significant opportunities for investors. U.S. Global Investors launched an ETF, the U.S. Global Technology and Aerospace & Defense ETF (WAR:NYSE ARCA), designed to give traders access to this burgeoning sector.

"This product (the WAR ETF) is really about protection and defense," Frank Holmes, CEO and chief investment officer of U.S. Global Investors, shared with newsletter author Jay Taylor. "Young investors and traders, they relate to playing games like your sons probably did years ago, Minecraft or these other war games. So that's where the idea came from. It's not to go to war, it's to protect us from war."

The fund has seen double-digit growth since it was put on the market, with more than 21% NAV growth through the end of the quarter on June 30.

Holmes has previously capitalized on market opportunities — such as after noticing rising airfares, he launched the JETS ETF (JETS: NYSE) to "get some of my money back." The fund has been a "great success," he remarked, with significant gains in holdings. The success of JETS inspired him to create a gold ETF centered around royalty companies, GOAU (GOAU: NYSE), which saw a 43% increase last fall from its inception at the start of 2024. "I wish my junior mining stocks had done that well," Taylor commented.

NATO countries and others are spending huge amounts on defense in the wake of the conflict in Ukraine, Holmes said.

But one new element to the equation that will touch nearly every corner of the military, much like the rest of society, is artificial intelligence (AI), Holmes said. One of the key components behind the increase in defense spending is fear trade, but it's also AI spending, he said. According to a report by Markets and Markets, the AI market in the military was estimated at US$9.2 billion in 2023 and is projected to reach US$38.8 billion by 2028 at a CAGR of 33.3%. "The development of autonomous military systems drives the adoption of AI in the military market," the report said. "The defense forces of leading countries have increased their defense spending to boost the deployment of AI on military platforms."

Holdings in the fund as of July 10 included Leonardo Drs Inc., Renk Group AG, A10 Networks Inc., and General Dynamics Corp. It trades in a 52-week range of US$17 and US$24.41.

According to Refinitiv, about 15% of the ETF is held by institutions, the rest is retail.Top shareholders include Citadel Advisors LLC with 9.86% and Jane Street Capital LLC with 5%.

AIRO Group Holdings Inc.

Aerospace and defense technologies pioneer AIRO Group Holdings Inc. (AIRO:NASDAQ) is an innovative platform in aerospace, autonomy, and air mobility focusing on modern aerospace and defense opportunities. AIRO is structured into four strategic business units, each serving as a key growth area within the aerospace and defense sector: Drones, Avionics, Training, and Electric Air Mobility.

AIRO in June declared the successful completion of a 90-day specialized training support mission for Naval Special Warfare (NSW), following significant revenue increases in 2024 and the first half of 2025 within its military training division.

As a leading provider of special warfare expertise and airborne resources, AIRO consistently offers top-tier training solutions for the U.S. Navy and U.S. Marine Corps' Joint Terminal Attack Controller (JTAC) program. Operating throughout California, Idaho, and Nevada, AIRO utilized its array of fighter jets and specially adapted Cessna twin-engine aircraft to carry out numerous Close Air Support (CAS) mission hours. These operations were executed under various Indefinite Delivery Indefinite Quantity (IDIQ) contracts, including the Terminal Attack Controller Trainer (TACT) and Naval Special Warfare Air Support contracts.

"AIRO is honored to be recognized as a trusted provider of training solutions for the U.S. Department of Defense and allied clients around the globe, especially during today's tumultuous geopolitical environment," said Executive Chairman Dr. Chirinjeev Kathuria. "Our recent award as a mandated participant of the US$5.7 billion Combat Air Force/Commercial Air Service (CAF CAS II) IDIQ contract underscores that trust and reinforces our commitment to delivering innovative, mission-ready solutions."

AIRO has been actively conducting extensive Close Air Support (CAS) and Intelligence, Surveillance, and Reconnaissance (ISR) missions, both as part of routine training and during a significant Air National Guard exercise. AIRO is further expanding its Training segment to bolster military readiness through sophisticated airborne platforms, operational excellence, and deep subject matter expertise.

Additionally, AIRO has recently initiated more training missions under new contracts with the U.S. Department of Defense, solidifying its essential role in boosting operational readiness and inter-service coordination, including a new contract that marks a decade of continuous support to NSW.

In total, AIRO has secured over US$30 million in contract awards directly supporting NSW, providing essential capabilities such as ISR aircraft, Full Motion Video (FMV) broadcast, live and simulated munitions, CAS and Call for Fire training, and dynamic unmanned ground target vehicles for live-fire exercises to enhance the realism and effectiveness of military training.

AIRO’s expertise also extends to allied partners. Most recently, the team prepared for an international exercise requiring the provision of Remotely Controlled Vehicles (RCVs) to serve as moving ground-based targets. These vehicles will be engaged with inert munitions to support target acquisition and engagement training. The customer is expected to lease over 50 targets and utilize up to eight of AIRO’s elite RCV Control Teams to support the exercise, further demonstrating our global reach and commitment to advanced, realistic training solutions.

"We are proud to continue delivering high-caliber training support to our military partners," said Joe Burns, CEO of AIRO Group. "Our expert aircrews and specialized aircraft, under our notable brand 'Coastal Defense' remain at the forefront of CAS and ISR operations, ensuring our warfighters receive the most realistic and effective training available. AIRO's training operations underscore our broader commitment to supporting tier-one operators behind the scenes and ahead of the fight."

BTIG initiated coverage of AIRO on Tuesday, assigning a Buy rating to the company. The firm is optimistic about AIRO's unique offerings, particularly in the drones sector, which it believes positions the company to gain significant market share amidst a heightened global threat landscape.

"We appreciate AIRO's Electric Air Mobility (EAM) approach given its low-risk, high-reward profile," Analyst Andre Madrid wrote, according to a report by Seeking Alpha on MSN.com. "The market is also becoming increasingly promising given recent federal initiatives and executive orders. Additionally, we believe Avionics and Training should unlock synergies for the Drones and EAM businesses that could allow for incremental growth through the outyears."

BTIG set a price target for AIRO at UA$26. The company, which is based in Chicago and focuses on urban air mobility and drone ecosystems, initially priced its IPO at US$10 per share in June and has seen its shares reach as high as US$39.07.

About 38% of the company is owned by insiders and management and about 26% by strategic corporate entities. The rest is retail.

Top shareholders include Chirinjeev Kathuria with 19.46%, New Generation Aerospace LLC with 15.37%, Carter Aviation Technologies with 11.1%, Joseph Burns with 7.1%, and Erik Edvard Svehag Per with 4.06%.

Its market cap is US$567.2 million with 26.17 million shares outstanding. It trades in a 52-week range of US$12.90 and US$39.07.

New Horizon Aircraft Ltd.

New Horizon Aircraft Ltd. (HOVR:NASDAQ) is an aerospace engineering firm focused on developing one of the world's inaugural hybrid eVTOLs designed to operate predominantly like a conventional aircraft.

The acronym eVTOL stands for electric Vertical Takeoff and Landing aircraft. They are a new type of aircraft that are designed to take off and land vertically like a helicopter, but they are powered by electricity.

This innovation promises top-tier speed, range, and operational utility. New Horizon's distinctive designs emphasize mission-critical attributes, prioritizing safety, performance, and utility above all. The company said it aims to swiftly finalize testing and certification of its Cavorite X7 eVTOL, subsequently breaking into the market to address a wide range of initial use cases.

Also known as Horizon Aircraft, the company recently announced a pivotal partnership with Andrea Mocellin, a globally renowned mobility designer, to enhance the design and aesthetics of the groundbreaking Cavorite X7 hybrid-electric eVTOL aircraft. Mocellin, celebrated for his innovative contributions to aviation, automotive, and micromobility, brings a wealth of experience from his leadership roles at companies like Lilium, Alfa Romeo, Maserati, NIO, Pininfarina, and the internationally acclaimed Revolve Air.

The Cavorite X7 is engineered for superior performance, extended range, safety, and versatile operation, the company said.

Horizon and Mocellin will concentrate on refining its external shape, proportions, and critical design features, marrying functionality with aesthetics to boost efficiency, aerodynamics, and the overall user experience. The interior will be crafted to support various configurations, maximizing space and enhancing the user experience while maintaining functionality and comfort.

"As we advance to the next development stage of the Cavorite X7, collaborating with Andrea enables us to enhance the aircraft's design and affirm our commitment to leading-edge innovation in eVTOL technology," Co-founder and Chief Executive Officer Brandon Robinson said.

"It is a unique opportunity to collaborate with Horizon Aircraft on this groundbreaking project," Mocellin said. "By combining my background in transportation design and mobility innovation, our aim is to produce an aircraft that is both high-performing and instantly recognizable, establishing a new standard in the industry."

Oak Ridge Financial Analyst Richard Ryan, writing in an updated research note on June 16, affirmed his firm's Buy rating on the stock and increased his price target (PT) from CA$2.35 to CA$3.40.

"The increase in our PT is based on an increase in peer multiples paired and a rise in HOVR's stock price and associated VWAP, which is used to calculate new share issuances," Rryan wrote. "As a result, our 2030 share count is 134.2M (previously 145.5M), resulting in a CA$3.40 PT."

Ryan pointed to a recent milestone where the company achieved full-wing transition flight of its large-scale prototype aircraft and an executive order signed by Trump that aims to accelerate the commercialization of drone technologies and other emerging technologies, like eVTOL aircraft.

"We believe the executive order may bolster collaboration efforts between aviation authorities and be the initial rising tide that lifts all boats," Ryan noted.

According to Refinitiv, about 15% of the company is owned by insiders and management, about 30% by strategic corporate entities, and less than 1% institutions. The rest is retail.

Top shareholders include the Canso Group with 16.23%, Robinson Family Ventures Inc. with 7.63%, William George Brumder with 7.2%, Dusin M. Shindo with 4.17%, and Mehana Capital LLC with 3.96%.

Its market cap is US$50.22 million with 31.39 million shares outstanding. It trades in a 52-week range of US$0.24 and US$2.52.

DroneShield Ltd.

Last month, DroneShield Ltd. (DRO:ASX; DRSHF:OTC) announced it has secured three substantial standalone follow-on contracts totaling AU$61.6 million, or US$40 million, for its counterdrone system (C-UAS) products, marking the company's largest order to date.

This order surpasses the company's entire 2024 revenue of AU$57.5 million, according to a recent news release. "Following this contract announcement, DroneShield has AU$161M in contracted revenue to be delivered in 2025, exceeding our current full-year estimate of AU$140M," Bell Potter Analyst Daniel Laing noted in a June 25 research report.

The Australia-based company, which specializes in C-UAS solutions, serves a global clientele with a focus on radiofrequency sensing, artificial intelligence, machine learning, sensor fusion, electronic warfare, rapid prototyping, and MIL-SPEC manufacturing. The new contracts, involving handheld detection and counterdrone systems along with related accessories, are with a private European reseller mandated to distribute these products to a European military client.

"Our expanded team in Europe, along with increased manufacturing output in Australia, ensures that DroneShield is well-positioned to meet the growing demand from both existing and new defense partners," stated Oleg Vornik, CEO of DroneShield, in the release. The company plans to deliver all contracted equipment within Q3/25, facilitated by its recent production expansion.

Shaw and Partners Analyst Abraham Akra highlighted in a June 25 research report that DroneShield's expanded Sydney facility and two manufacturing partners are equipped to handle up to AU$500 million in annual output. "DRO's ability to rapidly fulfill a contract of this size is a key competitive advantage in the defense sector and a reflection of the company's significant inventory investment over the last 18 months," Laing wrote.

This series of contracts is part of DroneShield's broader strategy to expand its presence in Europe, one of its largest markets. The European pipeline now represents 46% of all active projects, valued at AU$1.1 billion, up from AU$382 million in late February, as reported by Akra. Last year, the company exported 91% of its Australian production and is significantly investing to support domestic defense programs such as the €800B (AU$1.4 trillion) ReArm Europe Plan, now known as Readiness 2030.

Recent filings reveal that Vanguard Group has become a substantial shareholder in DroneShield, holding a 5.45% stake. Regal Funds Management holds approximately 7.15%, while State Street Global Advisors Australia Ltd. owns 4.12%.

These holdings add to the company's strategic investors, which currently control over 11% of DroneShield's stock. Management and insiders hold 5.68%, according to the most recent company presentation.

DroneShield has 874.62 million outstanding shares and 755.23 million free float traded shares. Its market cap is approximately AU$2.34 billion, and its sales pipeline has grown to AU$2.3 billion. The company’s 52-week share price range is AU$0.59 to 2.72.