President Donald Trump’s initiative to press defense firms to speed up their production, announced on December 22, should end up being positive for defense stocks. That’s because it appears that the President is signaling that he wants to spend meaningfully more money on weapons going forward. Multiple steps taken by the Trump administration in 2025 show that it is indeed eager to spend much more on defense programs, and the President’s announcement seems to be one more move in this direction. Consequently, it appears that defense contractors’ revenue and profits may in general very well exceed the Street’s expectations in 2026.
Although the President also suggested that he would seek to compel defense contractors to spend less on dividends share buybacks, and executive compensation, it’s likely that he would only be able to do so through a law passed by Congress, and he does not appear to be seeking such legislation.
Analyzing Trump’s Announcement and their implications for defense stocks
The President announced that he would meet with the CEOs of large American defense firms in an effort to push them to devote more of their companies’ funds to producing weapons.
“We make the best equipment in the world but they don’t make them fast enough,” the president was quoted as saying.
Of course, these firms generate significant profits on all of the products they sell. And Trump is likely asking them to produce more weapons faster because he wants the government to buy more of these products within the next year or two than is currently planned. Therefore, the president’s initiative will probably result in these companies’ profits rising significantly, lifting their stocks.
Trump also stated that “We don’t want to have executives making $50 million a year issuing big dividends to everybody and also doing buybacks and also saying we don’t have the money to build a plant.” According to Bloomberg, unnamed sources added that “Trump could sign a new executive order clamping down on buybacks and dividends by top defense companies” and requiring that these firms tie their executives’ pay “more closely to overall performance levels in delivering specific systems.”
But Trump’s quote indicated that companies would only be penalized if they refuse to take steps to accelerate their production. Since these companies will benefit by increasing their output, it’s unlikely that they will turn down the President’s request. Further, executive orders can legally only direct federal agencies how to enforce existing laws, not make new ones. And it’s doubtful whether existing laws contain provisions enabling the executive branch to limit defense contractors’ buybacks, dividends and executive compensation if they do not meet the government’s production requests.
Multiple Large Defense Stocks Have Risen Since Trump’s Announcement
the administration has generally looked to spend much more on weapons
The Trump administration has proposed an increase of about 15% in the domestic defense budget for fiscal 2026, and it has said that it would seek an another $113 billion of funding for defense during the current fiscal year. What’s more, the Pentagon has requested that companies build roughly 300,000 drones in a relatively short amount of time, and Trump, in his recent announcement, said that he would seek to build a new warship.
Therefore, it appears that the recent announcement will lead to the Pentagon buying more weapons from U.S. companies in the longer term, likely marking an intensification of the administration’s existing policies and raising defense contractors’ profits beyond current expectations.
*This article is intended to be informational only; it is not financial advice.
