Global Defense: Why Investment Is Accelerating

Over the past decade, the global landscape has changed significantly. The number of armed conflicts has increased, tensions among major powers have intensified, and military budgets have grown substantially. In response to a more unstable geopolitical environment, many countries have increased their defense spending to strengthen their military capabilities.

 

NATO members, in particular, have committed to raising defense expenditures, with a target of allocating up to 5% of GDP to defense by 2035³ . This trend is also evident in Canada, which reached the NATO benchmark of dedicating 2% of GDP on defence for the first time in fiscal year 2025–2026⁴. 

 

This environment is driving growing investor interest in the defense sector. However, this is more than a short-term market trend. It represents a structural shift that is reshaping how investors assess long-term opportunities and risks.

The defense sector is attracting growing investor attention as geopolitical tensions intensify and governments strengthen their military capabilities.

 

Since Russia’s annexation of Crimea in 2014, security concerns have become an increasingly important priority for governments around the world. This trend has accelerated in recent years, prompting many countries to increase military spending and invest more heavily in their defense capabilities.

 

Within the North Atlantic Treaty Organization (NATO), member countries have also committed to strengthening collective security and allocating a greater share of their resources to defense. This commitment is reflected in a sustained increase in public investment across the sector and a growing focus on enhancing military capabilities.

 

In this environment, defense is no longer simply a sector influenced by isolated geopolitical events. It is increasingly emerging as a long-term structural investment theme with the potential to have a lasting impact on the economy, financial markets, and investment opportunities.

Investing in the defense sector today requires taking geopolitical developments and government decisions into account as part of the investment analysis process.

 

Beyond financial fundamentals, geopolitical and strategic considerations can also influence the outlook for a sector or a company. Some industries are now regarded as strategically important by governments. As a result, they may benefit from increased support, protective measures, or public investment, regardless of their short-term profitability. 

 

Before investing, it may therefore be worthwhile to understand governments’ strategic priorities and the geopolitical dynamics shaping them, alongside traditional financial criteria.

Defense is not a single industry, but rather an ecosystem made up of many interconnected sectors. When people think of defense, they often picture weapons manufacturers. In reality, the sector also encompasses advanced technologies, specialized infrastructure, essential services, and dual-use components that can serve both civilian and military markets.

 

Weapons, Ammunition and Platforms

 

This category includes assets directly associated with military operations:

 

• Armored vehicles, naval vessels, and specialized aircraft;
• Surveillance, protection, and defense systems;
• Equipment designed to support and protect military personnel.

 

These assets represent the most visible part of the industry, but they account for only one segment of the broader defense value chain.

 

Military Technologies and Dual-Use Components

 

Modern defense capabilities increasingly rely on advanced technologies, many of which also have applications in other sectors of the economy:

 

• Artificial intelligence, used for data analysis, automation, and decision support;
• Cybersecurity solutions designed to protect networks and critical infrastructure;
• Navigation systems, sensors, specialized software, and advanced electronic components.

 

Many of these technologies are considered dual-use, meaning they can be used for civilian purposes while also playing an important role in defense and security capabilities.

 

Strategic Services and Infrastructure

 

The defense ecosystem also includes a wide range of services and infrastructure that support military operations and national security objectives:

 

• Logistics and transportation services;
• Consulting and technical support services;
• Ports, airports, and other strategic infrastructure.

 

These activities help maintain defense capabilities and support the supply chains that underpin the sector.

 

In this context, investing in defense does not simply mean gaining exposure to weapons manufacturers. It can also provide access to companies involved in advanced technologies, critical infrastructure, specialized services, and essential components that contribute to national security and economic sovereignty.

Before exploring this theme, consider the following questions:

 

• Is this trend temporary or long-lasting?
• What role will governments play?
• Which sectors are truly strategic?
• How can investors gain exposure effectively?
• What are the associated risks?

 

This type of analysis helps place the defense theme within a broader investment context.

Investing in defense involves risks that differ from those typically associated with traditional sectors. Non-financial factors tend to play a more significant role in this investment theme than in many other industries. Among the key considerations are political risk, geopolitical risk, dependence on government funding, concentration risk, and public perception.

 

• Political risk: Government decisions can have a direct impact on certain sectors. Changes in public policy or shifts in strategic priorities may significantly influence the performance of companies operating in defense-related industries.
• Geopolitical risk: Markets can react strongly to international tensions, conflicts, or changes in relations between countries, potentially leading to increased volatility.
• Government funding dependency risk: Some sectors and companies may rely heavily on government support and public spending to sustain their operations or support future growth.
• Concentration risk: A significant allocation to a specific investment theme may reduce portfolio diversification and increase exposure to adverse events affecting that sector.
• Ethical and reputational risk: Due to its unique nature, the defense sector may raise ethical, social responsibility, or sustainability considerations for certain investors.

Investing in defense means investing in an entire value chain, not just in military companies. Depending on an investor’s approach and desired level of diversification, there are several ways to gain exposure to this theme, including through individual stocks, exchange-traded funds (ETFs), or investments that provide indirect exposure to the sector.

• Individual Stocks : Some companies specialize in defense systems, advanced technologies, or military software.
• Exchange-Traded Funds (ETFs) : Certain ETFs bring together companies involved in defense and related technologies. They offer diversification, broad market exposure, and access to multiple companies through a single investment.
• Indirect exposure: Investors can also gain exposure to the defense theme through related sectors, such as artificial intelligence, semiconductors, and raw materials that play a strategic role in defense supply chains.

Explore Trading Central’s Strategy Builder, a screening tool that can help identify investment opportunities across a range of market themes, including defense. Using its filtering capabilities, investors can gain exposure to companies and sectors aligned with specific themes based on their investment objectives.

In a more uncertain world, certain themes naturally become more important.

 

The key is not predicting the future, it is understanding the forces reshaping markets.

• Defense is emerging as a structural investment theme.
• Governments play a central role in shaping outcomes.
• Defense is an ecosystem, not a standalone sector.
• Investment analysis increasingly requires an understanding of geopolitics and public policy.

 

Want to Deepen Your Understanding of Markets and Long-Term Trends?

Explore our Learning Centre to discover resources on self-directed investing, market analysis, and the economic trends shaping tomorrow’s investment opportunities.

 

¹  NATO, The Hague Summit Declaration, June 25, 2025, https://www.nato.int/en/about-us/official-texts-and-resources/official-texts/2025/06/25/the-hague-summit-declaration.

 

² Government of Canada, Department of National Defence, Canada Achieves the 2% of Gross Domestic Product Defence Spending Benchmark, Canada.ca, March 26, 2026