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Strategy and Allocation
NATO’s Drone Wake-Up Call: Defense Stocks Just Got New Fuel
Cheap drones just did what decades of defense summits could not. They forced NATO to admit its defenses are outdated. The result is a multi-year rearmament cycle, and U.S. defense primes are about to cash in.
By Joseph Sherman
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The European Parliament passed a resolution that demands stronger collective EU responses to Russian violations of the EU’s airspace. This comes after rogue Russian drones have disrupted European aviation for weeks. The most tense confrontation so far was when Poland shot down Russian drones in September. It marked the first direct NATO–Russia clash, and the first time the NATO alliance had to face the reality that its airspace is now part of the drone battlefield.
The Drone Economics
The Cost Curve Favors Attackers
In drone warfare, the attackers have an edge. A $20,000 drone can force a defender to launch an interceptor that costs millions. Multiply that equation, and you see the problem. NATO’s missile shields and radar systems were designed for a few expensive incoming ballistic missiles, not swarms of cheap drones.
This isn’t an issue isolated to Europe. The Pentagon realized it cannot rely on Cold War–era defense doctrines meant to stop a nuke, when cheap drones with wi-fi can slip through billion-dollar systems. And quickly, Washington kicked off a rearmament drive to plug the gap.
The Massive Rearmament Drive is Not a One-Off Spend
The numbers speak for themselves. The Army placed a $9.8 billion order for nearly 2,000 PAC-3 MSE interceptors. The Pentagon signed a $9.5 billion contract for long-range JASSM and LRASM missiles. Northrop’s B-21 Raider stealth bomber has entered full-scale production. Add to this naval contracts for SM-6 interceptors, AIM-260 air-to-air missiles, and nuclear submarine reactors. And add to this billions more in 155mm shells, HIMARS rockets, and Javelin missiles.
These new types of warfare-related expenses are the beginning of a procurement cycle that will stretch for years, preparing the US for a war that hopefully never comes. From missiles to bombers, submarines to munitions, defense budgets are pouring into scaled weapons production.
How Can You Profit from the Rearmament Cycle?
Drone incursions over Europe forced NATO and the US to confront their air-defense blind spots and prepare for a new type of war. The NATO alliance and the US are now locked into a multi-year rearmament cycle, and when governments panic, defense contractors like Lockheed, Raytheon, and Northrop prosper with a policy-backed certainty of steady defense spending. Here are the defense sector ETFs holding the winners primed to gain the most:
Bottom Line
NATO’s drone wake-up call guarantees years of elevated defense spending. For investors, defense ETFs like ITA, PPA, XAR, and MISL provide different ways to ride the procurement wave, from concentrated prime exposure to broader, drone-focused baskets.
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