Two Industrial Powerhouses to Watch as Global Defense Spending Surges

Key Points

• RTX is sitting on a massive $289 billion backlog, with potential to reach $460 billion by the end of 2028.

• Honeywell Aerospace represents a newly independent player in the defense sector following its recent spin-off.

• Both industrial giants are strategically positioned to capitalize on escalating military budgets worldwide.

While servicing national debt consumes a larger portion of the budget than defense, military and national security spending remains a colossal priority. The United States continues to allocate vast resources to its armed forces, with recent budget requests highlighting a massive commitment to defense capabilities. This massive capital flow extends beyond America’s borders, as nations globally are ramping up military expenditures in response to geopolitical tensions and strategic shifts.

Global defense spending reached a staggering $2.9 trillion last year, representing a significant share of worldwide economic output. For investors, this massive wave of capital presents compelling opportunities, particularly within the largest industrial giants. Two such companies stand out: Honeywell Aerospace (NASDAQ: HONA) and RTX (NYSE: RTX).

Global governments are accelerating defense spending. Image source: Getty Images.

RTX: Capitalizing on a Massive Backlog and Global Demand

RTX has established itself as a premier defense contractor, boasting an impressive order backlog of $289 billion. This backlog is projected to grow even further, potentially reaching $460 billion by the end of 2028, underscoring the company’s strong position as a preferred vendor for governments worldwide, including the United States.

The company is a primary beneficiary of the expected military replenishment cycle, particularly as nations address depleted ordnance stocks. For instance, the U.S. government has sought to accelerate the production of critical systems like the Tomahawk missile, manufactured by RTX, to bolster its inventory. This strong demand is not limited to the U.S.; international allies such as Japan and Poland are significantly increasing their defense budgets. Japan is considering raising military spending to 3.5% of its GDP, while Poland’s defense budget is soaring to 4.8% of GDP, driven by strategic security concerns. RTX is well-positioned to capture substantial contract value from these key allies.

Honeywell Aerospace: A Fresh Frontier in Defense Technology

Following its recent spin-off from Honeywell Technologies (NASDAQ: HON), Honeywell Aerospace has emerged as a standalone public company. Despite trading significantly below its 52-week high since the separation, the company presents a potential value opportunity for long-term, risk-tolerant investors.

Honeywell Aerospace is a key manufacturer of advanced navigation systems, turbofan engines for military trainers and combat jets, and gas turbine engines for heavy armor like the M1 Abrams tank. Beyond propulsion, the company produces specialized power systems, sensors, and secure communications equipment exclusively for military and government use. To further capture a larger share of the expanding defense market, the company is investing $500 million to enhance its domestic manufacturing facilities, aiming to secure more direct contracts with the Department of Defense.

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