The first quarter of 2025 showcased the continued strength and strategic depth of the U.S. defense technology sector. Leading defense contractors posted resilient results supported by deep order backlogs, strong demand for next-generation platforms, and continued geopolitical uncertainty. At the same time, inflationary pressures, tariffs, and supply chain challenges highlighted vulnerabilities in global sourcing and fixed-price contracting.
Sustained Demand and Record Backlogs
The top-tier U.S. defense companies reported combined quarterly revenues exceeding $68 billion, led by NOC ($41.0), RTX ($20.3B), and Lockheed Martin ($17.96B). Notably, defense-focused backlogs reached new heights, totaling over half a trillion US dollars in orders: Lockheed Martin at $173 billion, GD with $102 billion spread across three of its four operating businesses, Northrop Grumman at $91.5 billion, and Raytheon (part of RTX) at $61 billion. These multi-year pipelines signal enduring global demand for advanced air, sea, and space capabilities.
Lockheed Martin maintained its position as the sector’s cornerstone, delivering solid revenue growth driven by continued F-35 deliveries and sales of missile systems. The company unveiled its “fifth-generation plus” upgrade roadmap for the F-35, aiming to integrate up to 80% of sixth-generation capabilities—such as enhanced stealth and AI-driven sensor fusion—at half of the cost expected with sixth-generation platforms.
Meanwhile, General Dynamics posted a 13.9% revenue increase, fuelled by the strength of its Gulfstream jet division and new orders for Virginia-class submarine components. GE Aerospace and RTX saw double-digit growth in aerospace engines and defense electronics, respectively, driven by demand linked to NATO modernization and the Ukraine conflict.
Modernization Milestones and New-Gen Programs
The quarter marked several key milestones in U.S. force modernization:
• Northrop Grumman’s B-21 Raider program advanced despite a $477 million production loss. The stealth bomber, now scoped to produce 145 units (up from 100), is central to the U.S. long-range strike strategy. While the company had to absorb this loss due to the fixed-cost contract, these changes will eventually benefit the company in the future, enabling a faster production rate and accelerated deliveries if the Air Force requires them.
• Boeing’s F-47 NGAD fighter program secured its first U.S. Air Force contract, signaling a major leap into sixth-generation combat aviation and the autonomous air combat ecosystem. Yet, this win has not been included in Q1 earnings results.
• GE Aerospace progressed on its XA102 adaptive cycle engine, which is destined for the NGAD future fighter jet. The company also secured a $5 billion F110 contract, bolstering its role in future propulsion technologies for fighters and rotorcraft.
Tariffs and Supply Chain Disruptions Challenge Margins
Despite healthy earnings and expanding backlogs, defense firms grapple with cost pressures. U.S. tariffs on metals and high-tech components have created significant headwinds, with RTX projecting an $850 million impact in 2025, GE Aerospace estimating $500 million, and Boeing absorbing $150 million.
To offset these pressures, companies are pursuing trade zone exemptions, renegotiating contracts, and sometimes shifting their supply chains domestically or to tariff-exempt regions. Still, the combination of tariffs and fixed-price contract risk—as highlighted by Boeing’s margin squeeze on the B-21—may limit earnings upside in the near term.
Sector Outlook: Resilience with Caution
The defense technology sector enters the remainder of 2025 on a strong footing, supported by:
• Robust backlogs that extend over multiple years
• Next-generation programs (B-21, F-47, new engines) entering low-rate or full-scale production, Sentinel ICBM, Golden Dome on the horizon.
• Geopolitical tensions that sustain elevated defense procurement rates globally, despite political tensions.
However, several factors will influence sector momentum:
1. Execution discipline on high-profile programs like the F-35 Lot 22, submarine builds, and space systems
DoD procurement trends, including increased use of Indefinite Delivery/Indefinite Quantity (IDIQ) contracts and accelerated purchasing authorities such as Other Transaction Authority (OTA)
2. International market recalibration, particularly as European partners pursue industrial sovereignty in defense systems
Investor Perspective
Defense primes such as Lockheed Martin (NYSE: LMT), RTX (NYSE: RTX), Northrop Grumman (NYSE: NOC), and General Dynamics (NYSE: GD) remain well positioned for long-term growth. Valuation upside hinges on improved margin performance and successful delivery of next-gen platforms.
Short-term risks include exposure to tariff volatility, labor disruptions (e.g., at General Dynamics Electric Boat), supply chain disruptions (such as raw materials and component availability), and certification delays, notably in engine programs and commercial defense crossovers.
Conclusion
Q1 2025 affirmed that the defense tech sector remains a cornerstone of strategic and economic resilience. As the industry pivots toward sixth-generation capabilities, autonomous systems, and space-based defense architectures, sustained government investment and agile supply chain adaptation will determine its trajectory.
For stakeholders—governments, investors, and allied defense firms—the message is clear: the modernization wave is accelerating, but navigating fiscal and geopolitical turbulence will require both innovation and operational discipline.
Originally published Defense Tech Market Q1 2025: Strong Backlogs and Strategic Programs Drive Resilience Amid Tariff Headwinds on by https://defense-update.com/20250425_defense-tech-market-q1-2025-strong-backlogs-and-strategic-programs-drive-resilience-amid-tariff-headwinds.html?utm_source=rss&utm_medium=rss&utm_campaign=defense-tech-market-q1-2025-strong-backlogs-and-strategic-programs-drive-resilience-amid-tariff-headwinds at Defense Update
Originally published Defense Update
