Best Defense Stocks in 2025… So Far

Written by Chris MarkochSome investors downplay the link between politics and investing, and sometimes Capitol Hill events have little impact. But if it were all irrelevant, why would so many members of Congress trade stocks based on the information they receive?

Reality shows that sometimes our nation’s leaders leave promising investment opportunities hiding in plain sight. For example, in March, Congress passed a continuing resolution (CR) to fund the government through the end of fiscal year 2025. Not only does this prevent a government shutdown, but it also highlights the new Congress’s evolving priorities, helping investors spot key opportunities.

One area standing out so far in 2025 is defense spending. Many defense stocks had been under pressure earlier this year over concerns about possible defense budget cuts as part of the Department of Government Efficiency (DOGE) initiative. However, the latest CR secured an additional $9 billion for the Department of Defense (DoD), emphasizing modernization and new technologies.

That means it’s time for investors to take a closer look at some of the best defense stocks of 2025—so far.

1. Lockheed Martin: One of the Best Defense Stocks at a Discount

Lockheed Martin Corp. (NYSE: LMT) is one of the largest defense contractors in the world. The company is coming off another record revenue year in 2024 and is already seeing solid momentum in 2025. Yet, the stock remains down more than 15% from its October 2024 highs.

Some contrarians argue that LMT stock may lose appeal if a potential peace dividend emerges from a reduced U.S. military footprint abroad. However, at a time when modernization is a national priority, defense spending is not expected to slow down. Lockheed’s focus areas—AI, space defense, and cybersecurity—align with these future needs.

Plus, investors are getting LMT stock at an attractive price-to-earnings (P/E) ratio of around 21x earnings and approximately 17x forward earnings, offering an attractive discount compared to the average aerospace and defense P/E ratio of around 25x.

2. Northrop Grumman: Backlog Gives Investors Peace of Mind

Northrop Grumman Corp. (NYSE: NOC) wrapped up 2024 with revenue topping $41 billion. Although the stock is down roughly 7% over the past six months, Northrop’s story is about long-term stability.

It is important to note that Northrop was awarded over $50 billion in new contracts in 2024, building a record backlog now exceeding $94 billion.

One of the company’s headline projects, the B-21 Raider stealth bomber for the U.S. Air Force, remains on track with production ramping up in 2025. With no significant cuts looming in the defense budget and European allies also expanding their military investments, Northrop’s massive backlog offers long-term security.

And like Lockheed, NOC stock trades at attractive valuations, with both its current and forward P/E ratios hovering around 17x.

3. Axon: Law Enforcement and Government Contracts Drive Long-Term Growth

Axon Enterprise Inc. (NASDAQ: AXON) is a leading provider of technology solutions such as less-lethal weapons (e.g., tasers), body cameras, and cloud-based software. Although primarily used by law enforcement personnel, Axon does have contracts with the U.S. government, including the U.S. Border Patrol.

One intriguing statistic about Axon is how rapidly analysts are raising their price targets. One of the best defense stocks, AXON has been up more than 95% in the last 12 months. However, 12 months ago, that price was just over $300 and was about 3% above consensus.

While pricey by traditional valuation measures, Axon’s growth trajectory and expanding government reach make it a stock to watch in 2025—and beyond.

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Alphabet Rebounds After Strong Earnings and Buyback Announcement

Written by Ryan Hasson

Finally, some good news for shares of Alphabet (NASDAQ: GOOGL), Google’s parent company. After a turbulent start to 2025, the stock has gained momentum following a strong earnings report, a dividend increase, and the authorization of a massive buyback program.

However, Alphabet faced several headwinds leading up to its earnings. The stock had fallen roughly 27% from its 52-week high and was down about 20% year-to-date. The decline was fueled by a risk-off environment that hammered tech stocks, growing concerns about the threat from AI-based search competitors like OpenAI’s ChatGPT and XAI’s Grok, as well as regulatory challenges.

Notably, a federal judge recently ruled that Google operated an illegal monopoly in the online advertising market, marking the second time in eight months that the company was labeled an unlawful monopolist under the Sherman Antitrust Act. The ruling could eventually force Alphabet to divest parts of its ad-tech business, although the company has already announced its intention to appeal.

Despite these pressures, a compelling bull case for Alphabet existed ahead of its earnings. Its valuation had become compressed, reaching historically low earnings multiples, while its core businesses continued to show growth and resilience. Investors willing to look past the short-term noise saw an opportunity, and Alphabet did not disappoint.

Alphabet Tops Earnings, Announces $70 Billion Buyback

Alphabet reported strong first-quarter 2025 earnings on April 24, surpassing expectations across the board. Revenue reached $90.23 billion, a 12% increase year-over-year, beating estimates of $89.12 billion. Earnings per share came in at $2.81, crushing the $2.01 consensus estimate by nearly 40%.

Google’s core search business generated $50.7 billion in revenue, a 9.8% increase, bolstered by AI-driven features such as AI Overviews, which now have 1.5 billion monthly users. This data point should reassure investors who are concerned about Alphabet’s ability to fend off rising competition in AI search.

YouTube advertising revenue was $8.93 billion, just shy of the $8.94 billion forecast, while overall advertising revenue rose 8.5% to $66.89 billion. Meanwhile, Google Cloud reported $12.26 billion in revenue, up 28% year-over-year. This slightly missed the consensus of $12.27 billion but delivered improved margins of 17.8%.

Alphabet also announced a $70 billion share buyback and increased its quarterly dividend by 5% to 21 cents per share. Capital expenditures surged 43% to $17.2 billion, reflecting the company’s heavy investments into AI infrastructure, but Alphabet reaffirmed its $75 billion full-year capex guidance. Following the report, shares jumped nearly 5% in after-hours trading, adding roughly $75 billion to its valuation.

Analysts See Further Upside for GOOGL

The strong earnings performance has reignited optimism among analysts. Of the 40 analysts covering Alphabet, the stock carries a consensus Moderate Buy rating and a new average price target of $198.63, implying about 23% upsidefrom current levels.

Bank of America analysts maintained their Buy rating and raised their price target from $185 to $200 following the release of the report. They highlighted Alphabet’s strong performance in Search and Cloud, the positive impact of AI features like AI Overviews, and robust traction for its Gemini large language model (LLM).

BofA also boosted its 2025 estimates, citing solid ad spending trends and potential upside from AI-driven monetization, even as they expect slower growth in Q2 due to tougher year-over-year comparisons.

Similarly, Citigroup analysts reiterated their Buy rating and increased their price target from $195 to $200. They praised Alphabet’s resilience in Search advertising, strengthened by AI tools such as AI Overviews, which now serve over 1.5 billion users monthly. While they acknowledged macroeconomic uncertainties, Citigroup expressed confidence in Alphabet’s ability to sustain Search growth and leverage AI advancements to drive further revenue opportunities, particularly through Gemini.

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Could Selling Taiwan Semiconductor Be Buffett’s Biggest Regret?

Written by Gabriel Osorio-Mazilli

Warren Buffett is one of the most respected and widely followed investors in modern financial markets. He has a track record of success that spans several decades and recently showcased his ability to time his exits ahead of what turned out to be a near-record month in terms of volatility for the S&P 500 index.

While his success rate is high enough to justify his fame, one decision might weigh on him in the coming years.

That decision was to sell out of one of the leading stocks in the technology sector, not just in the United States but globally, as this company owns and operates the vast majority of the chips and semiconductor supply chain and logistics worldwide.

Perhaps anticipating the potential effects of trade tariffs, or otherwise looking to avoid some geopolitical tensions overall, Buffett’s sale of this industry leader might become a regret later.

The stock in question is Taiwan Semiconductor Manufacturing (NYSE: TSM).

As investors will find out shortly, this stock is just as attractive today as when Buffett first took an interest—if not more so. Its importance has only been amplified, while its relative discount to all-time highs offers investors a fantastic risk-to-reward ratio in today’s volatile environment.

Taiwan Semiconductor Stock’s Discount: Just as Good

There is one undeniable aspect behind most of what Warren Buffett and other value investors like him like to look for in an investment: a clear-cut discount. Now that shares of Taiwan Semiconductor stock have traded down to 73% of their 52-week high level, that reality might start to set in across the board despite current trade tariff fears.

At this low price, bearish traders seem to have attacked the possibility that President Trump’s tariffs will bring about the worst-case scenario for Taiwan Semiconductor and other industry stocks, though reality seems a bit different today.

Now that chip exports from China have been exempted, some of these fears have been rendered irrelevant, opening up a path for the stock to trend higher and retest previous highs, if not make new ones. Of course, price action is not something Buffett is concerned with, so here are some fundamental factors that do matter.

Financial Profile: The Makeup for Compounding

If there’s anything that differentiates a business from the rest of the pack, it’s the level of profitability it generates, and it all starts with the rate of gross margins. Since a high gross profit margin typically indicates buying power and a higher-than-average market share, Buffett and other investors tend to look for this.

Taiwan Semiconductor’s financials show that up to 57.4% in gross margins were generated over the past 12 months, giving the “green light” to the belief that this company holds some pricing power and significant market share. Now, these benefits have started trickling down into something much more critical, something investors hunt for all the time.

A high retention rate from each sale allows management to allocate capital more effectively, essentially accelerating the rate at which value compounds within the business, and this is something that can be quantified through the return on invested capital (ROIC) rate.

Taiwan Semiconductor reported up to 22.3% in ROIC for the past year, an extremely attractive level considering that annual stock price performance tends to match the long-term average ROIC rate of any business, so investors should look at this former Buffett pick as one that is still worth having today.

The Market’s Take on Taiwan Semiconductor Stock

It’s one thing to see these figures and become bullish as an individual. Still, individualism very rarely turns into profits in this business, as the broader market has to become aware of the same view and then move the stock in that direction. This is why checking in with other participants, starting with Wall Street analysts, is essential.

When it comes to these analysts, investors can see that the consensus price target is still set at $212 per sharedespite all the negative headlines surrounding semiconductor stocks, meaning an implied upside of as much as 28.3% is still present in this stock’s future to be taken advantage of by willing investors.

Speaking of taking advantage, some investors have already started doing just that recently, as can be seen by the 11.7% boost in holdings coming from institutional allocators at the Mather Group. This move raised their entire position to a high of $1.1 million today, but more importantly, it signaled confidence despite the storm markets find themselves in.

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