Defense stocks recently suffered their worst losing streak on record. In September, the SPDR S&P Aerospace & Defense ETF (XAR) fell for more weeks in a row than at any point since its 2011 launch, giving back its entire 2026 gain.
The sector’s recent selloff comes as Washington lines up a major increase in military spending. The White House’s fiscal 2027 budget request seeks a record $1.5 trillion for defense. According to Pentagon officials, that includes nearly $54 billion for drones and other unmanned systems. By comparison, the Pentagon’s Defense Autonomous Warfare Group received about $226 million in fiscal 2026.
With prices down and budgets rising, are established defense contractors or newer drone and space companies better positioned for the years ahead? That is the question host Crystal Navellier puts to InvestorPlace analysts Luke Lango and Jonathan Rose in the latest episode of The Investor Place. (The episode was recorded on Oct. 27, ahead of the Nov. 3 midterm elections.)
Both see reasons to watch defense stocks closely, but they approach the opportunity differently. Luke focuses on the long-term spending cycle and the balance between established contractors and emerging military technology. Jonathan looks at the Nov. 3 midterm elections, interest rates and the options-market activity that could signal a change in momentum.
Watch the full episode below.
Why Defense Stocks Could Be Worth Watching After the Pullback
Luke argues that Middle East peace-talk headlines and a stalled budget in Washington have weighed on defense stocks even as the need for military equipment and new technology continues. Prices could stay choppy into the midterms and the December funding deadline, he says, but he sees the potential for a multiyear spending cycle, particularly in autonomous systems and drones.
Jonathan also sees a potential disconnect between stock prices and underlying demand. But he cautions that smaller, higher-growth companies can be particularly sensitive to interest rates and election uncertainty. For the smaller names, he would hold off until there is more clarity after the Nov. 3 midterms.
That caution applies mainly to the smaller names. Jonathan still sees the pullback as an opportunity for long-term investors, and he explains why in the episode.
The two analysts agree on the long-term relevance of drone technology. They differ in what investors should watch before acting.
9 Defense, Drone and Space Stocks Discussed in the Episode
The episode spans traditional defense contractors and newer technology companies. The analysts mention nine publicly traded companies. The table below identifies who discussed each name. (These are not nine formal buy recommendations or a ranked list.)
| Company | Ticker | Discussed by |
|---|---|---|
| Lockheed Martin | LMT | Luke |
| RTX | RTX | Luke |
| Northrop Grumman | NOC | Luke |
| AeroVironment | AVAV | Both |
| Kratos Defense | KTOS | Both |
| Rocket Lab | RKLB | Luke; Jonathan (as an ETF holding) |
| Planet Labs | PL | Luke |
| Karman Holdings | KRMN | Jonathan |
| Huntington Ingalls Industries | HII | Jonathan (as an ETF holding) |
Also mentioned: SPDR S&P Aerospace & Defense ETF (XAR) and privately held SpaceX.
Lockheed Martin Stock (LMT), RTX Stock (RTX) and Northrop Grumman Stock (NOC)
Luke identifies these three established defense contractors as the more stable side of his preferred approach. Their large, multiyear military programs offer a different type of exposure from smaller, rapidly evolving drone businesses. He points to contract visibility and dividends as reasons to consider established contractors alongside higher-growth names.
AeroVironment Stock (AVAV) and Kratos Defense Stock (KTOS)
These are two of the more direct drone and autonomous-defense names discussed. Luke highlights their growth prospects and what he views as attractive valuations relative to their histories. Jonathan also discusses AeroVironment’s backlog as an example of why a falling share price does not necessarily indicate weakening demand.
Rocket Lab Stock (RKLB) and Planet Labs Stock (PL)
Luke extends the discussion beyond battlefield hardware to space infrastructure and satellite intelligence. He sees Rocket Lab as a company with opportunities beyond defense, while Planet Labs offers exposure to satellite imagery and intelligence applications. His view is that both may benefit from several sources of demand, with defense representing one part of the opportunity. Luke wrote more about both companies in his recent piece on how space is becoming a battlefield and a business.
Want more ideas from the analysts?
Explore Luke Lango’s free Hypergrowth Investing e-letter for his perspective on emerging technologies.
Or join Jonathan Rose’s free Masters in Trading class to learn more about his market-analysis approach.
Can an Aerospace and Defense ETF Offer Broader Exposure?
Jonathan highlights the SPDR S&P Aerospace & Defense ETF (XAR) as a way to get broad exposure to aerospace and defense rather than betting on a single company. In the episode, he explains why investors who have sat out the sector so far may be in a better spot than they think.
For newer investors, Luke describes a “barbell” approach: established contractors on one side, higher-growth drone and space companies on the other. The goal is to combine different business profiles, while recognizing that emerging technology stocks can be much more volatile.
What Could Trigger the Next Rally in Drone Stocks?
For Luke, rate relief and getting past the midterms could improve the outlook for smaller defense-technology companies. He emphasizes preparing for a potential turn rather than trying to catch a falling stock before its decline ends.
Jonathan takes a trading-oriented approach. Drawing on his experience as an options market maker, he describes watching for unusually large, speculative call-option purchases that might indicate renewed institutional interest. He says the signals he wants to see had not yet appeared at the time of recording.
Neither analyst suggests that a rebound is guaranteed. Their discussion centers on the conditions that could improve the investment setup and the risks that remain in the meantime.
Watch The Investor Place and Get Free Investing Research
Watch Luke Lango and Jonathan Rose discuss the defense-stock outlook in the full episode. Then subscribe to The Investor Place podcast on InvestorPlace’s YouTube channel for more weekly discussions of market trends, investing risks and potential opportunities.
Jonathan Rose: Learn how a former options market maker evaluates market signals and unusual options activity. FREE: Join Jonathan’s Masters in Trading class.
Luke Lango: Follow the technologies reshaping industries, from artificial intelligence to space and defense. FREE: Get Luke’s Hypergrowth Investing e-letter.
Defense Stocks FAQ
What are defense stocks?
Defense stocks are shares of companies that make or supply products and services used in national security, including military aircraft, missiles, drones, satellites and related technologies.
Which drone stocks did Luke Lango and Jonathan Rose discuss?
The analysts discussed AeroVironment (AVAV) and Kratos Defense (KTOS), among other aerospace, defense and space-related companies. Their discussion covered both potential growth and the volatility associated with smaller defense-technology stocks.
Are drone stocks a good investment in 2026?
Drone stocks offer exposure to one of the fastest-growing parts of the defense budget, but they tend to be more volatile than large defense contractors. Luke and Jonathan both see long-term potential in drone technology, though they differ on timing. Investors should weigh their own goals and risk tolerance before buying.
Is an aerospace and defense ETF a way to invest in the sector?
An aerospace and defense ETF can provide exposure to multiple companies through one fund. Jonathan discussed XAR in the episode. ETFs still carry market risk, and their holdings and sector exposures should be checked before investing.
