The Top 3 AI-Focused Defense Stocks to Put on Your Radar

Written by Jeffrey Neal Johnson on October 23, 2025

In an era defined by a renewed great power competition and the dawn of autonomous warfare, the most compelling defense investments are shifting from traditional hardware manufacturers to the firms best positioned to dominate the technological arms race in artificial intelligence (AI), unmanned systems, and space. The defense sector has returned to the spotlight, driven by a strategic pivot toward technological superiority. This shift in warfare necessitates that investors re-evaluate key defense players, focusing on those demonstrating leadership and contract success in AI-powered autonomous systems and space-based assets, which are now the new primary drivers of defense budget growth.

The New Battlefield: AI and Autonomy as Growth Drivers

The global defense landscape is undergoing a fundamental transformation. Warfare is rapidly evolving from a contest of platforms to a conflict of networks, where victory depends on the ability to collect, process, and act on vast amounts of data faster than an adversary. This has elevated AI, autonomous systems, and space-based assets from experimental concepts to strategic military and government imperatives.

This shift is reflected in government spending. The proposed Fiscal Year 2026 Department of Defense budget, for example, allocates over $13 billion to autonomy and AI initiatives. This funding is designed to accelerate the development of the foundational technologies for this new era of warfare. For investors, this creates a clear directive: identify the companies building the intelligent, connected, and autonomous platforms that will define 21st-century conflict.

Lockheed Martin: Integrating Intelligence into Dominant Platforms

Lockheed Martin (NYSE: LMT) is evolving beyond its role as the world’s largest defense contractor. The company is now a leader in embedding AI and autonomous capabilities into its world-leading platforms, effectively making them intelligent nodes in a networked battlefield.

The F-35 Lightning II fighter jet exemplifies this strategy. It functions as a flying data-processing hub, designed to gather and share critical intelligence across a combat zone. This capability was a key driver in Lockheed Martin’s third-quarter 2025 results, where the Aeronautics division saw sales climb 12% to $7.3 billion.

Lockheed is also making tangible progress in autonomy, including ongoing development of an autonomous Black Hawk helicopter for uncrewed logistics and evacuation missions.

Financially, Lockheed Martin reported strong Q3 2025 results with sales of $18.6 billion and a record backlog of $179 billion, providing extensive revenue visibility. The company raised its full-year guidance and increased its share repurchase authorization, signaling confidence in its financial outlook.

Despite a strong report, Lockheed Martin’s stock price saw a modest decline on Oct. 21, 2025, suggesting a sell-the-news reaction from investors. With a market capitalization of approximately $115 billion and a consensus Hold rating, the stock offers stability. Its 2.68% dividend yield, backed by 23 years of consecutive increases, provides reliable income for investors seeking a blend of technological innovation and shareholder returns.

Northrop Grumman: Architect of Next-Generation Systems

Northrop Grumman (NYSE: NOC) has solidified its position as a specialist in the advanced systems that define the new technological arms race. The company is the prime contractor for the B-21 Raider, a sixth-generation stealth bomber designed from the ground up for a networked, high-tech battlespace. The program achieved a major milestone in the third quarter with a second aircraft entering flight testing.

Northrop Grumman is also developing the command-and-control systems essential for autonomous warfare. Its Integrated Battle Command System (IBCS) uses an open architecture to connect disparate sensors and weapons into a unified network, a critical component for enabling AI-driven decision-making. This technological edge contributed to a 14% sales increase in its Defense Systems segment.

In Northrop Grumman’s third-quarter 2025 report, Northrop Grumman delivered mixed results. It posted earnings of $7.67 per share, well ahead of estimates, and raised its full-year profit guidance. However, the company missed revenue expectations and trimmed its full-year sales forecast, causing the stock to trade slightly lower.

The market’s adverse reaction to the revenue guidance highlights a focus on top-line growth. While the stock declined, the company’s Moderate Buy consensus rating and its strategic position in high-priority defense areas present a compelling case.

With a market capitalization of around $85.6 billion, Northrop Grumman represents a focused investment in the future of autonomous and strategic deterrence.

RTX Corporation: The Nervous System of AI-Powered Defense

If modern warfare is about data, RTX Corporation (NYSE: RTX), through its Raytheon segment, is building the critical nervous system: the sensors, networks, and smart munitions that allow armed forces to see, communicate, and strike with precision.

The demand for RTX’s technology was evident in its third-quarter 2025 earnings report results. The Raytheon segment saw sales increase 10%, driven by high demand for its Patriot air defense systems and SM-6 missiles.

The company secured the largest-ever order for its AMRAAM missiles and is using its own proprietary AI tools to identify production bottlenecks, which have helped more than double the output of the missile this year.

RTX delivered a strong third quarter, exceeding estimates with both revenue ($22.5 billion) and earnings ($1.70 per share), while also raising its full-year guidance. This strong performance, which included a massive $251 billion backlog, was met with a positive market reaction, sending the stock to a new 52-week high.

RTX Corporation’s stock price surged over 8% on its earnings release, reflecting strong investor confidence. With a Moderate Buy consensus rating and a market cap exceeding $234 billion, the company is capitalizing directly on the growing global demand for the intelligent systems and precision weapons that form the backbone of modern defense.

Investor Considerations in the Tech Cold War

The companies poised to lead the defense sector are those that have embraced the shift to a software-defined, AI-enabled battlefield.

• Lockheed Martin offers a stable foundation, steadily upgrading its dominant platforms with next-generation technology while providing reliable shareholder returns.
• Northrop Grumman provides a more focused, growth-oriented investment in the future of autonomous systems and strategic platforms.
• RTX Corporation plays a crucial role in the underlying network, sensor, and intelligent weapons technologies that enable the entire modern defense ecosystem.

The trajectory is clear: the future of defense investing lies with the companies winning the new tech cold war. This represents a fundamental shift for investors. While traditional metrics like production volumes remain important, long-term growth will be increasingly driven by technological leadership in the digital domain.

As nations prioritize data superiority as the new strategic high ground, the value in the defense sector will flow to the firms that provide the intelligent platforms, autonomous systems, and networked infrastructure that define this new era.

Therefore, investors should closely monitor contract awards in AI-specific programs, internal R&D spending on digital technologies, and strategic partnerships that enhance a company’s software and autonomous capabilities. In this evolving landscape, technological dominance is the most reliable indicator of future prominence and performance.

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