The defense industry is entering a new era. Artificial intelligence is changing how wars are fought, how data is processed, and how governments make critical decisions. From autonomous drones to predictive logistics and cybersecurity, the integration of AI into military systems is no longer hypothetical—it’s operational.
Check out my complete AI stock watchlist here!
For traders and investors, this is a sector worth paying attention to. As I teach in every trading webinar, timing and narrative matter. And right now, the market loves a good AI story—especially when it ties to defense and security. But don’t chase blindly. You need to study the performance, valuation, and contracts backing these companies.
Table of Contents
7 AI Defense Stocks to Watch
Here are seven AI-focused defense stocks with strong government ties and AI integration that could shape the next wave of defense innovation:
| Company | Ticker | Key AI Focus |
| Lockheed Martin | NYSE: LMT | Autonomous systems, AI-enabled jets |
| Northrop Grumman | NYSE: NOC | AI in radar, missile defense, cyber |
| Raytheon Technologies | NYSE: RTX | AI-driven sensors and avionics |
| General Dynamics | NYSE: GD | Autonomous land/sea platforms |
| Palantir Technologies | NASDAQ: PLTR | AI-powered data and analytics |
| Leidos Holdings | NYSE: LDOS | AI in border security, logistics |
| AeroVironment | NASDAQ: AVAV | AI-guided drones and automation |
Before you send in your orders, take note: I have NO plans to trade these stocks unless they fit my preferred setups. This is only a watchlist.
The best traders watch more than they trade. That’s what I’m trying to model here. Pay attention to the work that goes in, not the picks that come out.
If you do decide to make a trade, I’ve got one piece of advice… USE AI TO TRADE AI!
I designed our IRIS AI bot exclusively for swing trading (it includes options now too).
Subscribers to the IRIS program get weekly analyst reports, training webinars, and best of all, access to the IRIS system itself.
The tool operates much like ChatGPT to produce screeners, trading plans, and more.
Master your swing trading strategy with our AI-driven tool today!
Lockheed Martin (NYSE: LMT)
Lockheed Martin is a major defense contractor and a core component of the U.S. military’s modernization efforts. Its use of artificial intelligence spans from autonomous drone swarms to predictive maintenance systems. Despite a tough Q2 2025, where Lockheed posted an 80% drop in quarterly profit due to $1.7 billion in special charges, the company’s AI-driven programs remain funded and active—especially in the classified aeronautics and next-gen fighter segments.
The company reaffirmed its $74 billion sales guidance for 2025, showing that its government procurement pipeline remains intact. In my experience, stocks like LMT can offer long-term upside when traders understand the difference between temporary financial hits and sustained defense contracts. Lockheed is still the top aerospace and defense name when it comes to integrating AI into weapons systems, flight software, and global logistics networks.
Northrop Grumman (NYSE: NOC)
Northrop Grumman is one of the most diversified defense players integrating AI across missile defense, cybersecurity, and aerospace systems. It recently raised its full-year guidance after Q2 results showed a 25% earnings increase and a 31% jump in operating income. Margins improved across all segments, especially in Mission Systems, where AI and machine learning are being applied to radar and navigation solutions.
International demand for Northrop’s platforms grew 18% year-over-year, and its backlog climbed to $89.7 billion. I teach that strong backlogs often indicate future price stability, especially in this sector. Northrop is one of the few defense stocks that combines scale, AI innovation, and predictable cash flows—key traits I look for when evaluating options and swing setups.
Raytheon Technologies (NYSE: RTX)
Raytheon’s focus on integrating AI into next-generation avionics, missile systems, and hypersonic defense makes it a standout. Its $217 billion backlog provides multi-year visibility into revenue, a key advantage in the defense industry where project timelines are long and policy-driven. Raytheon’s AI systems support combat data fusion, real-time threat assessment, and autonomous missile guidance.
Tariff pressures and valuation concerns have held RTX back near-term. The company is navigating roughly $850 million in tariff exposure over the next 12 months. Still, I teach traders to separate short-term noise from long-term fundamentals. Raytheon’s advanced defense platforms and AI-enabled command systems offer scalability, especially as U.S. and allied governments modernize their armed forces.
General Dynamics (NYSE: GD)
General Dynamics has quietly built a strong position in AI-enabled systems for both defense and aerospace. Its Q2 2025 revenue surged 8.9% year-over-year to $13 billion, with strong order flows pushing its backlog to a record $103.7 billion. This stock isn’t flashy, but it’s dependable—just like the Abrams tank or Gulfstream jet.
GD’s AI initiatives include unmanned underwater vehicles, autonomous ground systems, and data-driven logistics tools. I’ve always said: follow the cash and contracts. With a 2.2x book-to-bill ratio and rising defense spending, GD is positioned for sustained growth. For traders looking at fundamentals over hype, this is a steady AI defense play with upside through government procurement.
Palantir Technologies (NASDAQ: PLTR)
Palantir is not a traditional defense contractor, but its AI-powered data platforms are being adopted at every level of U.S. intelligence and defense operations. In Q1 2025, Palantir posted 39% year-over-year revenue growth, with U.S. commercial and government segments expanding sharply. The company is deeply embedded in military decision-making, battlefield simulations, and national security analytics.
That said, PLTR is trading at 123 times earnings and over 100 times forward sales. From a trader’s standpoint, this is a momentum name, not a value play. I’ve taught over and over: never fall in love with a stock just because it’s hot. Palantir is delivering strong performance metrics, but valuation models suggest that any miss in future quarters could hit the stock price hard.
Leidos Holdings (NYSE: LDOS)
Leidos offers AI-powered solutions for national security, transportation systems, and civil operations. Its focus on digital transformation for government clients makes it a critical vendor in AI defense development. Leidos was recently rated a “Buy” by Stifel with a $178 price target, citing its pivot toward high-growth areas like border tech and predictive logistics.
The company’s earnings guidance for 2025 shows moderate growth, with revenue expected at $17.13 billion. I’ve seen stocks like this fly under the radar until a big AI defense contract hits the wire. Leidos is well-diversified, and for traders looking to balance risk in a volatile market, this name offers exposure to AI with less drama than higher-multiple software stocks.
AeroVironment (NASDAQ: AVAV)
AeroVironment builds unmanned aerial systems and AI-guided drones like the Switchblade. Its recent $4.1 billion acquisition of BlueHalo expands its portfolio into laser weapons and advanced drone platforms. This is a pure play on automation in military operations. AVAV stock jumped 20% after strong Q4 earnings, but now trades at over 160 times earnings with a price-to-sales ratio above 7.
That’s a big risk. As I teach in every live session, chasing extended charts on high-multiple names can wreck a portfolio fast. Yes, drone adoption is accelerating, but AeroVironment’s operating margins and cash flow are far below S&P 500 averages. Traders should treat this stock as speculative and watch for better price setups before getting in.
How to Choose the Best AI Defense Stock
I’m not going to lie to you—if I knew how to choose surefire stocks I’d be sitting on some desert island that I own.
In reality, no one knows “the best AI defense stocks.” Careful investors and traders look at the following criteria:
Compare Growth Potential and Market Position
Not all AI defense stocks are built the same. Companies like Northrop and RTX offer strong operating margins and scale, while others like AVAV rely more on future potential. Look at revenue consistency, market share in critical platforms, and international contract growth. This is where earnings reports and backlog data offer real trading edge.
Evaluate AI-Specific Capabilities
Don’t just buy the “AI hype.” Understand what specific AI capabilities the company provides—machine learning for radar? Predictive logistics for troop movement? Decision support systems for commanders? As I teach often, edge in trading comes from knowing what a company actually sells and how that matches demand.
Assess Risk Tolerance and Volatility
High-growth stocks like Palantir come with sharp drawdowns. More mature names like General Dynamics or Leidos offer slower movement but better stability. Match your entry strategy to the volatility you’re comfortable managing. Options traders especially need to price in risk-adjusted returns.
Match Company Strengths to Your Trading Strategy
If you trade short-term, stick with stocks that react to headlines and catalysts—like PLTR or RTX on earnings or contract news. If you trade swing or position, look for names with strong cash flow and expanding margins, like Northrop or GD. Your strategy needs to align with the stock’s structure, not the other way around.
Challenges and Risk Factors Associated with AI Defense Stocks
The AI defense sector is growing fast, but it brings with it complex risks. These can affect investment outcomes and long-term trading strategies, especially when the stocks rely on sensitive or classified programs.
Ethical Concerns and Policy Restrictions
The use of AI in military weapons, surveillance, and autonomous drones raises ongoing international debate. Export controls, human rights scrutiny, and global policy shifts can slow growth or restrict key product categories. Traders need to monitor how new regulations may affect defense industry contracts and procurement cycles.
Budget Delays and Contract Dependencies
Most AI defense companies rely on multi-year U.S. government contracts. Political shifts or defense budget delays can pause or cancel contracts. For example, fixed-price contracts signed before inflation hit may now pressure margins, as seen with Lockheed. When I trade these names, I always factor in timing and certainty of revenue, not just the total backlog size.
Secrecy Around AI Programs Affecting Transparency
Classified programs mean less public disclosure. Investors and traders often have to rely on limited data and occasional statements. That makes it hard to assess pipeline strength or true innovation pace. You won’t always get clean performance metrics to act on, which adds risk, especially for options strategies.
Rapid Technological Shifts and Obsolescence
AI and cybersecurity tech change fast. If a company can’t innovate fast enough or defend against cyber threats, its existing systems can become obsolete. This is where companies with strong R&D funding, like Northrop or Raytheon, stand out. But even then, the risk of disruption is real and should be baked into valuation models.
Is Today the Right Time to Buy an AI Defense Stock?
Buying any stock starts with asking: what’s the catalyst? Right now, military budgets are rising globally. AI adoption is accelerating. But valuations for some stocks are stretched. Names like Northrop, with strong Q2 results and increased guidance, are trading with more justification than names like AeroVironment, which may be overpriced relative to fundamentals.
From a trading perspective, I look for technical setups backed by fundamental strength. I teach my students to time entries based on support levels, earnings catalysts, or institutional buying. Many of these names show strength in the current trend, but patience on entry can make or break the trade.
Key Takeaways
- AI is driving innovation across the defense sector, from autonomous weapons to logistics and battlefield analytics.
- Northrop Grumman, Raytheon, and General Dynamics offer stable growth and government backing with AI integration.
- Palantir and AeroVironment are higher-risk, higher-reward trades, best suited for short-term momentum strategies.
- Always factor in contract timing, budget dependency, and regulatory risks before allocating capital.
- Match your trading style to the stock’s characteristics—don’t force trades outside your strategy.
This is a market tailor-made for traders who are prepared. AI stocks thrive on volatility, but it’s up to you to capitalize on it. Stick to your plan, manage your risk, and don’t let FOMO drive your decisions.
These opportunities are fast and unpredictable, but with the right strategy, you can make them work for you.
If you want to know what I’m looking for — check out my free webinar here!
Frequently Asked Questions
How is AI Used in Military and Defense?
AI supports military personnel with systems that automate surveillance, analyze sensor data, and enhance robotics. These tools improve how products and services are deployed in the field. Defense contractors and software companies are building AI into logistics, targeting, and communication platforms, often relying on hardware from suppliers like Nvidia.
Why Has There Been a Recent Surge in Interest in AI Defense Stocks?
Investors are reacting to global trends in defense modernization and AI breakthroughs. Increased demand for information, analytics, and automation has created new opportunities across industries. Shares in companies tied to AI, defense manufacturing, and data services have seen strong inflows, including through ETFs and related funds.
How Does AI Improve Military Decision-Making and Operations?
AI speeds up decision-making by processing large volumes of information, allowing military personnel to act faster and with more precision. It supports real-time analysis, mission planning, and predictive systems. These insights help align operations with shifting battlefield conditions, reducing human error.
Are There ETFs with Exposure to AI in Defense?
Yes. Some ETFs include companies developing AI technology used in defense. These funds often hold a mix of manufacturers, software firms, and defense contractors. They offer broader access for people interested in the sector without picking individual stocks.
Are AI Defense Stocks Good for Long-Term Growth?
There’s long-term opportunity in AI software company defense stocks due to ongoing research, government investment, and adoption by customers in both commercial and military sectors. But valuations can run ahead of fundamentals. Growth depends on how well these companies scale products, manage vendors, and evolve with the technology.