3 Essential Defense Stocks Rising as Trump's Iran Strategy Drives a $1.5 Trillion Pentagon Budget Proposal

Six weeks of active war in Iran and the Persian Gulf paused on April 8 when President Donald Trump agreed to a two-week ceasefire that he extended for an indefinite period on Tuesday. The pause will continue until "discussions are concluded," according to the president.

It's not 100% clear how much America has spent on the war so far, both on actual combat operations and on enforcing its blockade of Iran. The Trump administration won't answer that question. "We keep asking. They keep ignoring us," laments media outlet MS Now. But The Washington Post reports that Trump plans to ask Congress for an additional $80 billion to $100 billion in funding to cover the cost of the war.

And that's just to start.

Image source: Getty Images.

A $1.5 trillion defense budget

For the government's fiscal 2026, which ends Sept. 30, Congress has authorized just over $890 billion in total spending on national defense. This week, the Pentagon announced it will request a sizable increase from that for fiscal 2027: It wants to lifting the total Defense Department budget to $1.5 trillion.

Obviously, that increase is well above the $80 billion to $100 billion tied directly to the current war. So where's all the extra money going, if not just to pay the bills for Trump's Iran expedition? Turns out, we actually know quite a bit on that score -- and it's good news for three essential defense stocks that are well positioned to profit from the increased defense spending: Boeing (NYSE: BA), Lockheed Martin (NYSE: LMT), and General Dynamics (NYSE: GD).

Boeing

Defense Department comptroller Jules W. Hurst III says the extra spending will primarily go toward "strengthening supply chains and supporting tens of thousands of small and medium-sized businesses" by acquiring new military hardware and replenishing and expanding munitions supplies. Specifically, 52% of the spending will go to buying "munitions, planes, tanks and ships."

Boeing would clearly benefit from the "planes" part of this target package. The Iran war's focus on sustaining operations on the far side of the world has highlighted the need for aerial refueling tankers to keep fighter jets, bombers, and even cargo planes fueled in flight. The Air Force's KC-135 Stratotankers are aging, however, (the first one flew in 1956), and are due to be replaced.

Boeing won a contract to begin replacing them with brand new KC-46A Pegasus tankers in 2010. In 2024, the Pentagon expanded its planned acquisition of Pegasus planes from 179 to 183, at a total cost of $34.7 billion. With extra funds in hand, the Pentagon will ask Boeing to increase Pegasus production in 2027, adding hundreds of millions of dollars, if not billions, to Boeing's backlog.

Lockheed Martin

One of Pegasus' primary missions is to keep F-35 Lightning II stealth fighter jets from Lockheed Martin full of fuel and flying. According to the U.S. Government Accountability Office, the Pentagon plans to eventually buy 2,470 F-35s at a total program cost (which includes both development and acquisition costs) of $446.6 billion. Each additional plane bought brings Lockheed $181 million closer to that figure.

It's good news for Lockheed, therefore, that the Pentagon's 2027 budget envisions nearly doubling F-35 production, from 47 planes produced in 2026 to 85 in 2027.

Put down your calculators: That's $15.4 billion for Lockheed.

General Dynamics

One of the Pentagon's biggest areas of investment under the new budget will be in shipbuilding. About $65.8 billion is earmarked for this effort, as the Navy aims to buy 18 new warships for the battle fleet, and also -- this is important -- 16 new support ships. The Navy will spend $8.7 billion more to improve infrastructure for building, repairing, and maintaining ships, investing in "seven private, four public and multiple 'Tier 2' private shipyards."

Historically, the Navy has split its shipbuilding contracts roughly 50-50 between General Dynamics and archrival Huntington Ingalls, both to ensure it has adequate construction capacity and to keep those contractors in competition to keep prices in check. That $65.8 billion will be a boon to both builders, but where I think the advantage shifts to General Dynamics is in its NASSCO shipbuilding division, which specializes in the construction not of warships but of support vessels, such as dry cargo/ammunition ships and fleet replenishment oilers (i.e., refueling ships).

If the 16 support ships to be built for the Navy take either of those forms, General Dynamics would be the logical choice to build them. Rumors that the Navy may invest in additional submarine tenders, destroyer tenders, minesweepers, and fire ships are less certain. Those contracts might go to Huntington Ingalls, or even to Lockheed Martin, which also builds a few ships for the Navy.

I'd still expect General Dynamics to win the bulk of this work -- and therefore the bulk of the $65.8 billion.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Boeing. The Motley Fool recommends Lockheed Martin. The Motley Fool has a disclosure policy.