2 Defense Stocks Worth Buying as Global Tensions Continue

Conflict is intensfying around the world, from Latin America to the Middle East to potentially the Pacific. In preparation for a less peaceful future, the U.S. is substantially increasing its defense budget, boosting it by 44% to $1.5 trillion in 2027 alone. Full budgets are not out yet, but it is clear there will be a huge rise in spending on new military technologies and in stockpiles of key products, such as missile defense systems.

Many stocks can benefit as suppliers to this new arsenal of democracy. Here are two defense stocks worth looking at.

A play on autonomous warfare

Anyone following the war in Ukraine knows that drones are the future of warfare. In land-based conflict, this means drones in the air. But for sea-based conflict, the U.S. Navy is increasing its defense and attack capabilities with underwater drones. The contractors making these drones can overlap with air drones such as start-up Anduril, but it is in a much earlier growth phase, with research and procurement only beginning now.

One stock at the center of the subsea drone supply chain is Kraken Robotics (OTC: KRKNF), a maker of batteries, sensors, and other systems for these unmanned underwater vehicles. Given the difficulty of building batteries that can operate in the high-pressure environments deep in the ocean, Kraken has minimal competition across many of its products.

This lack of competition should place the company on a significant growth trajectory during the next few years as the U. S. defense budget for underwater drones increases. In just the first few months of 2026, Kraken has announced $87 million in new orders across its product segments, with a key focus on subsea batteries for these drone makers.

Kraken's total revenue was $74 million in 2025. Along with its recent acquisition of the Covelya Group, Kraken has a long growth runway during the next decade that can turn it into a huge winner in any stock portfolio.

Image source: Getty Images.

The new hypersonic leader?

A more established player in the defense industry that will benefit from the growing defense budget is Leidos (NYSE: LDOS). It has many different divisions, including healthcare software for the Defense Department, mission software for the battlefield, cybersecurity systems, and defense technology.

It should see steady growth from existing contracts. Revenue hit $17 billion during the past 12 months, up 31% in the past five years. This is not hypergrowth by any means, but a steady piece of infrastructure within the federal government.

Where Leidos may see a growth surge is within its new hypersonic product, which is a key priority for the U.S. at the moment. It was recently awarded a $2.7 billion contract from the U.S. Army to bring its hypersonic products from prototype to production. The company has been developing these capabilities for many years, and it now appears to have the lead in winning the prime contract to supply hypersonic missiles to the Army, which could generate steady cash flows.

Right now, the stock market is not a fan of Leidos and other defense stocks. It trades at a price-to-earnings ratio (P/E) of just 11.5, which is very cheap given its steady growth potential. Management is steadily repurchasing stock as well, with shares outstanding down more than 11% during the past five years.

Combine these capital returns, the steady software business, and the potential growth from defense technology like hypersonics, and Leidos looks like a hidden gem investors can buy today. Along with Kraken Robotics, these are two defense stocks flying under the radar that investors can add to their portfolios.

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Kraken Robotics and Leidos. The Motley Fool has a disclosure policy.