Drew Fitzgerald

A lot of these defense-focused companies are hybrids of commercial and military technology.

Even if they're selling a lot of hardware to the US military and to its allies, they're also selling maintenance services, parts, all sorts of things to airlines.

And

That is a market that is threatened not only by direct conflict in the Middle East, but by high jet fuel prices.

And another factor is that in some cases, Northrop Grumman and others have been selling off a bit on concerns that the companies themselves will need to make big investments to adequately serve the programs that they're addressing.

Investors would prefer that a lot of free cash go to stock buybacks and to dividends.

Well, it really depends on the type of weapon that you're talking about.

There's been a lot of focus on the massive amount of very high-end tactical missiles and defensive interceptors that the US and its Gulf allies have expended just over the past few weeks.

These are very expensive weapons.

They take more than two years to make.

And it requires a lot of investment and a lot of time to address the American demand for those weapons, not to mention allies overseas.

Another thing I'd mention is that big defense companies make most of their revenue from very, very expensive platforms like fighters, bombers, and the like.

And even though spending appears to be rising on some of those programs, there's pushback in Congress to this massive $1.5 trillion military budget that the Trump administration has proposed.

So that's also in investors' minds as they think about where these defense companies will be going for the long haul.

Thanks for having me.

This would not be the largest contract that either company has with the U.S.

government.

But what it could offer them is space on the ground floor of this massive defensive system that will likely cost billions of dollars to upgrade and to maintain, not just over the next 10 years, but over the next few decades to come.

So it's a good position to be in.

And it shows a lot of the administration's preference for picking new technology companies like Anduril and Palantir over some of the more traditional defense contractors like Lockheed Martin and RTX that have built these sorts of systems in the past.