Global Alternatives Strategist
For many Americans, the most visible numbers since the start of the Iran conflict have been oil and gasoline prices. Defense and security analysts, however, have been focused on a different set of indicators: the drawdown in advanced munitions, the cost of replenishing those stockpiles and the potential future revenue for defense contractors. The conflict is also raising longer-term questions about a battlefield increasingly shaped by drones, missiles and advanced weapons rather than boots on the ground.
Replenishing the arsenal
One immediate and measurable impact of the conflict has been the volume of munitions used by the United States and Israel. These stocks will need to be manufactured and replaced, in many cases urgently, so that the U.S. will retain the capability to defend its global interests.
In the course of Operation Epic Fury, the United States struck 13,000 targets over 39 days before the ceasefire took effect. In the first 16 days alone, the U.S. is estimated to have launched 6,000 munitions towards Iran. Many were precision, or “smart” munitions that are costly to produce and have long delivery timelines. More than 400 Patriot surface-to-air missiles were used, equivalent to two years of supply at the current pace of procurement. More Tomahawk missiles have been fired in the latest conflict than in any military exercise to date other than Operation Iraqi Freedom in 2003, at an estimated cost of $1.9 billion.
Why defense stocks have not reacted more strongly
While the replenishment of these munitions is likely to benefit defense contractors, the S&P 500 Aerospace & Defense sector is up only 1.2% year to date, underperforming the broader S&P 500.
To understand this muted reaction, it helps to step back and consider the context before the conflict. Global defense budgets were already on an upward trajectory before the latest Iran escalation, and the sector gained 40.4% in 2025. Similarly, European defense stocks had already run up 77% in 2025, boosted by commitments made by NATO members to increase defense-related spending from 2% of GDP to 5% of GDP by 2035.
The battlefield is changing
Longer term, this conflict has prompted questions about the future of warfare. The Iran conflict, as well as the ongoing Russia-Ukraine war, have seen extensive use of frontier technologies such as drones, electronic warfare and A.I.-assisted weapons. These are technologies that allow humans to remain distant from the battlefield, and may be cheaper and faster to produce than tanks or fighter jets.
This is widening the investable universe around defense and security. Venture-backed firms are taking a larger role alongside established defense contractors to support the development and testing of newer technology.
2025 saw venture capital investment in defense technology reach new heights, with $50 billion of capital invested in over 1000 deals, and the first quarter of 2026 opened strongly with almost $10 billion of deals.
The next phase of defense investing may therefore depend not only on replenishing today’s stockpiles, but on identifying the technologies that will define tomorrow’s battlefield. These are as likely to be found in private markets as public markets, making it increasingly important to be exposed to both when building an allocation to defense and security.
By Aaron Mulvihill - May 27, 2026