3 Defense Tech Stocks Central to U.S. Battle Networks as Trump Ramps Up Spending on Iran and Beyond

The $900.6 billion Pentagon budget that took effect in early 2026 was already the largest in American history before the Iran war started. Then, President Donald Trump proposed a budget of $1.5 trillion for the Defense Department for 2027. Whatever skepticism you might feel about the odds that Congress will set the final number anywhere near that, the directional signal is unmistakable: The United States government is in the midst of a generational expansion of its military networks, and it doesn't seem to be slowing down.

The companies that will benefit most from this cycle aren't necessarily the defense primes -- the giant primary contractors like Lockheed Martin and General Dynamics. The specific technological priorities of the current moment -- battle network integration, missile tracking, cyber warfare, and AI-enabled edge processing -- favor companies that have spent years building precisely those capabilities.

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1. Mercury Systems

There's a way to think about Mercury Systems (NASDAQ: MRCY) that most coverage misses: It doesn't build the weapons. It builds what makes the weapons intelligent. Its products are processing platforms such as radiation-hardened signal processors and AI-capable edge computing subsystems that are embedded directly into the electronics of over 300 defense programs, including the F-35, the Patriot missile defense system, and numerous classified hypersonic programs.

In January, Mercury announced contracts exceeding $60 million across two critical U.S. space and strategic weapons programs. One extended a strategic weapons development contract through 2031. The other deal came from a space systems prime contractor, which tapped it to supply a subsystem for a national security satellite program -- specifically, Mercury's radiation-tolerant wideband storage and processing unit.

The "design-in" model is what makes Mercury stock particularly compelling. Once one of Mercury's processing platforms becomes embedded in a multidecade defense program -- and it is written into hundreds of them -- that sets it up for many years of ongoing revenues.

The Iran war is underscoring exactly how critical edge AI processing is at every node of the battlefield network. Mercury is the company that makes those nodes work.

2. Leonardo DRS

Leonardo DRS (NASDAQ: DRS) was awarded a subcontract in January 2026 to provide infrared mission payloads for the Space Development Agency's Tracking Layer Tranche 3 (TRKT3). That project is a cornerstone of the Pentagon's next-generation missile defense architecture.

Per its press release, Leonardo DRS "will design, build, integrate, and test advanced infrared mission payloads to support TRKT3’s accelerated capability to provide global detection, warning, and tracking of ballistic missiles and hypersonic weapons. The infrared capability will be used from the earliest stages of an adversarial launch through interception, including delivering precision fire-control sensing data for missile interceptors."

During the recent conflict, Iran has fired what it describes as hypersonic missiles. Tracking such weapons from space -- with the kind of speed and precision that DRS' infrared payloads are designed for -- is no longer a theoretical defense problem. The Space Force intends to deploy a constellation of approximately 30 of these missile-tracking satellites. Leonardo DRS is helping to build their eyes.

3. Parsons owns the digital battlefield nobody sees

Most defense industry coverage focuses on the companies behind the hardware -- missiles, planes, drones, satellites, etc. Parsons (NYSE: PSN) operates in the layer beneath it all, which is the cyber infrastructure that ties the battle network together. In February, its SealingTech subsidiary was awarded a three-year contract worth up to $500 million by U.S. Cyber Command to produce the Joint Cyber Hunt Kit -- a system for seeking out cyber threats on isolated computer networks.

Parsons also operates in space intelligence, signals intelligence, and missile warning -- capabilities it expanded in January through its acquisition of Altamira Technologies. The company is a classified-systems intelligence contractor that most retail investors have never heard of, which is the point. The less visible a defense contractor is to the public, the more likely its work sits in the sensitive programs that governments fund through every budget cycle, regardless of the direction the political winds are blowing.

U.S. defense spending may or may not reach Trump's aggressive $1.5 trillion target in 2027. But the underlying demand for battle network integration, missile tracking, and cyberdefense is structural, and Mercury Systems, Leonardo DRS, and Parsons are doing the specific technical work that the next decade's worth of defense projects will be built around.

Micah Zimmerman has no position in any of the stocks mentioned. The Motley Fool recommends Lockheed Martin. The Motley Fool has a disclosure policy.