Over this past weekend, Hamas, a Palestinian political and militant organization, launched a large-scale invasion and offensive against Israel from the Gaza Strip. Militants broke through the heavily fortified Gaza-Israel border and entered civilian settlements and military installations. This was the first direct conflict with Israel’s borders since the 1948 Arab-Israeli War. In response, Israel declared war for the first time since the 1973 Yom Kippur War. It called its counter operation Iron Swords.
The explosion of violence in Israel represents yet another escalation at a geopolitical flashpoint. In 2022, tensions between Russia and Ukraine escalated further when the former launched a large-scale offensive on February 24, 2022. The offensive stirred outrage among NATO allies, inspiring huge pledges of military and humanitarian aid to Ukraine. That conflict has developed into a bloody war of attrition, with a peaceful solution seemingly as remote as ever.
In 2022, the Stockholm International Peace Research Institute (SIPRI) reported that global military budgets reached an all-time high of $2.2 trillion. That represented the eighth consecutive year of global defense spending increases. A worsening global economic situation may further exacerbate geopolitical tensions, which should keep investors focused on the future of this space.
RTX Corp (NYSE:RTX) and Lockheed Martin (NYSE:LMT) are the two largest defense contractors in the United States. In the second quarter (Q2) of fiscal 2023, RTX delivered sales growth of 12% to $18.3 billion. Meanwhile, adjusted earnings per share (EPS) increased 11% to $1.29. In Q2 2023, Lockheed Martin reported net sales growth of 8% to $16.7 billion. It also posted a record backlog of $158 billion.
Both contractors can expect to see increased sales as U.S. and global defense spending climbs steadily into the middle of the 2020s.
