World military expenditure reached an all-time high, rising 2.9% year-over-year as geopolitical tensions and active conflicts drove nations to increase their defense budgets. The United States — historically the world's largest defense spender — was a notable exception, with its spending declining due to a freeze on Ukraine-related funding. The net result is a global defense market growing faster outside the US than at any point in recent memory.
Record global defense spending is a direct revenue tailwind for defense contractors, particularly European and non-US manufacturers who stand to capture budget share as allies fill the gap left by Washington. US-based defense giants like Lockheed Martin and RTX may face near-term revenue pressure from reduced government outlays, while ETFs with heavy European or broad defense exposure could outperform. This also signals a prolonged period of elevated defense budgets globally — a structural shift, not a one-year anomaly.
May 2025: NATO member nations submit updated defense expenditure commitments ahead of the June NATO summit. June 2025 NATO Summit: Allies expected to formalize new minimum defense spending targets, potentially raising the benchmark above the current 2% of GDP guideline. Next US defense budget resolution: Watch for Congressional action on any Ukraine supplemental funding or Department of Defense appropriations.
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