As global tensions rise, many investment professionals are urging investors to take a fresh look at the defence sector. The industry extends well beyond traditional weapons manufacturers and includes a wide range of businesses—from cybersecurity and artificial intelligence to logistics, engineering and advanced manufacturing. For retail investors, there are multiple ways to gain exposure depending on risk tolerance and ethical preferences: some choose to participate in the sector, while others avoid it entirely for political or moral reasons.
“Yes, we have these two hot wars going on, but I think we’ve had a reset of globalization and the Pax Americana in a significant way since Trump 2.0 began, such that military spending is going to be structurally higher,” said Brian Madden, chief investment officer with First Avenue Investment Counsel. He noted that, since the February onset of the latest conflict in the Middle East, certain market segments that historically perform well during geopolitical turmoil have not rallied as expected—including many defence-related stocks.
Defence stocks gain on rising global spending
Madden argues the investment case for defence goes well beyond any single conflict. He highlights several factors underpinning elevated defence budgets: the prolonged war in Ukraine now in its fourth year, a U.S. strike on Iranian nuclear facilities in the summer of 2025, and political pressure from U.S. leadership encouraging NATO members to increase their defence spending. Together, these forces suggest a structural lift in global defence expenditures rather than a short-term spike tied to an isolated event.
Because many defence names have not seen meaningful gains during the most recent conflicts, Madden believes there may be buying opportunities for disciplined investors. “I would argue that the case for allocating more of a portfolio to either pure play or hybrid exposures to defence was strong even before this latest conflict broke out,” he said, noting that defence is a long-term strategic theme rather than a sector driven solely by cyclical domestic economic conditions.
Chris McHaney, head of investment management and strategy at Global X Investments Canada, adds that while the United States has historically been the world’s largest defence spender, the unwinding of globalization means other nations are increasingly investing in their own military capabilities. “The message has been the U.S. isn’t necessarily going to be there to defend everyone going forward,” McHaney said, pointing to a global trend of countries bolstering self-reliant defence postures.
For investors considering how to access this theme, global exposure is important. Many countries are expanding budgets, so limiting holdings to a single market can miss opportunities. At the same time, exposure doesn’t have to be limited to traditional weapons makers: opportunities exist in cybersecurity, unmanned systems and drone technology, artificial intelligence for defence applications, and companies supplying logistics, communications and support infrastructure.
Rising military budgets lift related industries
Canada’s recent expenditures illustrate how defence spending can ripple through an economy. In 2025, Canada reported national defence spending of $63.4 billion and met its NATO commitment to reach two per cent of GDP on defence for the first time. The federal government also announced an additional investment of $32 billion to establish and enhance forward operating locations in northern regions. These commitments require a broad range of goods and services: personnel costs, training, bases and facilities, transport infrastructure, munitions and equipment.
Because Canada does not manufacture many of the major defence platforms domestically, much of this spending is likely to be sourced from international suppliers—primarily U.S. defence contractors. That means Canadian retail investors seeking more direct exposure to defence production might consider established large-cap U.S. names such as Lockheed Martin or Northrop Grumman. At the same time, domestic investors can gain indirect exposure through companies that serve both civilian and military markets, including aerospace and training specialists like Bombardier and CAE.
Beyond manufacturers, a range of engineering, construction and infrastructure firms are poised to benefit from increased defence investment. Companies involved in building ports, airstrips, barracks and maintenance facilities—firms such as WSP Global, AtkinsRéalis and Aecon—could see additional contracts and revenue streams as governments execute on their military infrastructure plans. These businesses are not pure defence plays but may participate in the broader supply chain, offering a more diversified route into the theme.
Investors balance ethics and defence opportunities
Despite the potential financial case, many investors evaluate defence opportunities through an environmental, social and governance (ESG) lens and may choose to avoid direct investment in companies tied to weapons systems. Madden emphasizes that this is a personal and moral decision: investors should determine whether ethical considerations will guide their portfolios and make those choices transparently.
For those uncomfortable with investing in traditional defence manufacturers, alternatives exist. Cybersecurity firms, suppliers of dual-use technologies, and companies focused on logistics, communications and non-lethal defence capabilities often provide exposure to national-security spending without the same ethical concerns tied to weapons production. Some investors may prioritize supporting domestic supply chains to enhance national sovereignty, while others simply seek diversified exposure to the secular trend of higher defence budgets.
Ultimately, investors must weigh the potential returns against their values and financial objectives. “Those who overlook some of these sectors might be leaving money on the table and that’s a perfectly valid decision on their part,” Madden said. “It’s just one that needs to be made with eyes wide open.”