Investing in the National Security of Different Countries on EasyEquities

In 2024, global defense spending rose to $2.46 trillion, driven by heightened threat perceptions. Europe experienced an 11.7% real increase in defense budgets, reaching $457 billion, marking a decade of growth. Germany led with a 23.2% rise, though its future budget remains uncertain due to political instability. Poland also climbed in the rankings, becoming the 15th-largest defense spender.

Additionally, NATO Secretary General announced that European countries would increase defense spending following President Donald Trump's request to raise it to 5% of GDP. Despite a $700 billion increase since Trump took office, the Secretary General stressed that further investment is needed to enhance security and balance contributions with the U.S., emphasizing Europe's need to strengthen its own defense capabilities.

This rising defense expenditure has benefited companies like BAE Systems, whose revenue surged 14% to £28.33 billion in 2024. Strong demand for fighter jets, submarines, and frigates fueled growth, with EBIT reaching £3.01 billion and earnings per share rising to £68.5. New orders totaled £33.7 billion, pushing the backlog to £77.8 billion. CEO Charles Woodburn attributed this momentum to increased defense spending, and the company expects sales to grow 9% and profits 8% this year.

"Based on the exceptional visibility of our record order backlog and the sustainability of our value-compounding business model, we remain confident in the positive momentum of our business going forward," said, CEO of BAE Systems.

Additionally, BAE Systems is benefiting from increased defense budgets in multiple countries. The company secured £33.7 billion in orders and advanced key programs, including:

• A joint venture with Leonardo SpA and JAIEC for the Global Combat Air Programme (GCAP), pending approval.
• Selection under AUKUS to deliver Australia’s nuclear submarines in partnership with ASC Pty Ltd.
• A £4.6 billion contract for three Hunter-class frigates in Australia, with construction underway.
• Additional combat vehicle orders for Hägglunds, totaling $2.5 billion (£2.0 billion).
• Multiple satellite launches for the U.S. Space Force and NASA, including the delivery of a key instrument for NASA’s Roman Space Telescope.

Guidance for 2025

Leidos Holdings, Inc. is another company benefiting from increased defense spending, securing major contracts across key military and security programs. Q4 bookings reached $7.6 billion, totaling $23.4 billion for FY 2024, with book-to-bill ratios of 1.7 and 1.4. The year-end backlog stood at $43.6 billion, including $8.4 billion in funded contracts.

"Our outlook for the future remains decidedly positive, as we have a clearly defined strategy and a technology-enabled team poised to navigate this dynamic environment from a position of strength," said the CEO of Leidos.

Leidos also secured major defense and security contracts, including:

• IFPC Increment 2 Program: A five-year, $4.1 billion IDIQ contract from the U.S. Army for missile defense, including an initial order of 18 launchers for Guam.
• TSA Logistics Support: An eight-year, $2.6 billion contract to maintain 12,000 security units across 430+ U.S. airports, leveraging AI for predictive maintenance.
• F-16 Foreign Military Sales: A 10-year, $987 million contract to provide engineering and sustainment for global F-16 fleets, supporting 2,200 active aircraft.

Guidance for 2025

Defense can be both good and bad. Countries maintain defense and military capabilities to protect their sovereignty, ensure national security, deter external threats, and uphold geopolitical stability. Military forces also support disaster response, peacekeeping, and international commitments. Strong defense systems help deter aggression, safeguard economic interests, and maintain internal stability.

Conclusion

The growth of defense spending could present significant opportunities for investors, particularly in defense stocks, aerospace, cybersecurity, and military technology sectors. Companies like BAE Systems and Leidos Holdings could benefit from increased government contracts, higher order backlogs, and strong revenue growth. This sustained demand for advanced weaponry, defense systems, and security solutions can lead to steady dividend payouts and capital appreciation, making defense stocks an attractive option for long-term investors.

For ethical investors who consider investing in defense stocks taboo, socially responsible investing (SRI) and Environmental, Social, and Governance (ESG) principled products, such as Shariah-compliant portfolios, offer alternatives. These portfolios generally exclude defense companies that derive the majority of their revenue from non-permissible activities, such as arms production or weapons sales.

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