Lockheed Martin, Northrop Grumman lead gains while drone makers Ondas and Elbit outperform
Defense contractors rallied on Monday as investors flocked to safety plays following the weekend’s large-scale U.S. and Israeli military operations against Iran, which resulted in the death of Iranian leader Ayatollah Ali Khamenei.
The S&P 500 initially stumbled on the news but recovered most of its losses by late morning. Oil prices spiked as Iran, a major exporter, controls the strategic Strait of Hormuz, while gold—the traditional safe haven—also moved higher. But the clearest winners were defense stocks, a pattern consistent with past geopolitical conflicts.
Leading defense names all finished firmly in positive territory:
Two drone-focused companies outperformed the broader defense rally: Ondas Holdings (ONDS) spiked 10% at its peak before settling, while Israeli defense firm Elbit Systems (ESLT) added 7%.
President Donald Trump indicated the strikes—designed to prevent Iran from obtaining nuclear weapons and degrade its missile capabilities—could continue for four to five weeks, and potentially much longer. The extended timeline suggests substantial ordnance consumption ahead, with replenishment needs likely to support defense contractor backlogs for years.
RTX produces many of the interceptors protecting U.S. and allied forces from missile attacks. Lockheed Martin oversees production of F-16 and F-35 fighter jets, which served as primary platforms in the weekend strikes. Huntington Ingalls and General Dynamics, as the Navy’s principal shipbuilders, may see accelerated demand for ammunition supply vessels and maintenance support, even as their core aircraft carrier and submarine programs remain unaffected. Northrop Grumman’s B-21 Raider—the Air Force’s next-generation strategic deterrent—will likely receive higher priority amid heightened tensions.
Beyond traditional primes, Ondas Holdings and Elbit Systems represent modern warfare’s technological edge.
Ondas Holdings, a defense technology company specializing in autonomous systems, develops Optimus—the first FAA-certified small drone for fully automated aerial operations—along with counter-drone systems. While it’s unclear whether Ondas participated in the Iran strike, the market is betting on its technology.
The company reported Q3 revenue of $10.1 million, up sixfold year-over-year and 60% sequentially, targeting at least $110 million in revenue by 2026. On Monday, Ondas announced a $10 million strategic investment in World View, a stratospheric ISR (intelligence, surveillance and reconnaissance) specialist. Despite a staggering 1,000% gain over the past year and a $5 billion market cap, growth potential remains if the company delivers on its 2026 forecast.
Elbit Systems serves as the primary drone supplier for the Israeli Defense Forces, providing approximately 85% of its UAV fleet. Its Hermes 900 drone, capable of extended surveillance missions, likely plays a key role in current operations.
Q3 revenue rose a modest 12% to $1.92 billion, but the company noted a “material increase in demand” since the Gaza war began. The new Iranian front should sustain this momentum. Order backlog reached $25.2 billion—equivalent to over three years of revenue based on the most recent quarter.
At around 80 times earnings, Elbit trades at a premium, but its position as Israel’s leading defense supplier, substantial backlog and growth prospects—particularly with regional conflict escalating—appear to justify the valuation.
Geopolitical shocks typically trigger defensive rallies, but defense stocks offer more than short-term trading opportunities. Weapons consumption requires replenishment, providing multi-year revenue visibility. Meanwhile, technological evolution—drones, missile defense systems—is creating new specialized leaders.
Risks remain significant. Ondas and Elbit trade at historically high valuations, with market expectations for conflict expansion potentially priced in. Any de-escalation or delayed orders could trigger sharp corrections. For conservative investors, Lockheed Martin or Northrop Grumman offer exposure to both core defense programs and high-growth segments like drones and missile defense at relatively reasonable valuations.
As Middle East tensions escalate, capital is flowing to companies supplying the conflict. Whether retail investors should join the rally—or maintain caution—depends on their appetite for geopolitical risk and tolerance for frothy valuations.
