Key Points
- It is increasingly evident that our earlier thesis—that we are entering an era of rising geopolitical tensions—is beginning to materialise.
- As of 26 March 2026, the ongoing conflict between the U.S.-led coalition, Israel, and Iran (referred to as Operation Epic Fury) has resulted in one of the fastest depletions of precision-guided munitions and defence inventories in modern history, and replenishment is needed.
- This conflict has highlighted the rapid “democratisation” of air power through the use of low-cost, autonomous systems. In recent years, few military technologies have reshaped warfare as rapidly as drones.
- Even prior to this conflict, defence demand was already firm. The Iran conflict represents a new chapter in global defence readiness. Regardless of when the war ends, it has already served as a wake-up call for countries worldwide on the importance of military preparedness.
It is increasingly evident that our earlier thesis—that we are entering an era of rising geopolitical tensions—is beginning to materialise. Given the rapid developments over the past two years, we expect military and defence capabilities to become a top priority for many countries, leading to a sustained increase in global defence spending.
In fact, US on March 2026 is reportedly seeking USD $200bn more for the war in Iran, with President Donald Trump saying it is needed to replenish ammunition and other supplies depleted by the conflict and previous aid to other countries.
Based on the latest revised estimates, global defence expenditure is projected to rise from USD 2.7 trillion in 2024 to over USD 3.6 trillion by 2030, with upside potential should replenishment cycle accelerate further. In the United States, FY2026 defence outlays are now expected to reach USD 1 trillion—materially ahead of earlier forecasts—reflecting a faster and broader rearmament cycle taking shape. President Trump has also proposed a massive $1.5 trillion Fiscal Year 2027 defence budget, representing a 44% increase over previous levels. This proposal focuses on major military modernization, shipbuilding, and pay raises for service members, aiming for the largest spending hike since World War II.
Figure 1: Performance Global X Defence Tech since our previous call
Most Immediate Driver – Inventory Replenishment
As of 26 March 2026, the ongoing conflict between the U.S.-led coalition, Israel, and Iran (referred to as Operation Epic Fury) has resulted in one of the fastest depletions of precision-guided munitions and defence inventories in modern history.
United States:
The U.S. has borne the largest financial cost. The Pentagon reported USD 11.3 billion in unbudgeted operational and munitions costs within the first six days. This included the firing of 320 Tomahawk missiles in the first week, representing approximately 10% of the total U.S. inventory. In addition, stocks of ballistic missiles (ATACMS and the newer PrSM) have been depleted by roughly one-third.
From Table 3, within just 144 hours of high-intensity conflict, the U.S. deployed a volume of advanced munitions (such as Tomahawk and SM-3 missiles) that exceeded typical peacetime planning assumptions. The U.S. used 319 missiles in six days (left), whereas industry production capacity stands at only 190 units annually (right).
The White House has recently requested a USD 200 billion supplemental budget from Congress to sustain the war effort and replenish inventories, including collaboration with RTX Corporation to increase annual Tomahawk production to over 1,000 missiles as part of a multi-year initiative.
Table 1: Estimated breakdown of reported war cost at D+6
|
Category |
Unbudgeted Costs (USD) |
|
Munitions |
$11.3 billion |
|
Combat losses and infrastructure damage |
$1.4 billion |
|
Operations and support costs |
$26.5 million |
|
Total (with Infrastructure Damage) |
$12.7 billion |
|
Source: CSIS (Authors' estimates using FY 2026 DOD budget documents) |
|
Israel:
Israeli military spending reached approximately USD 6.4 billion in the first 20 days of the war against Iran. Stockpiles of long-range ballistic missile interceptors have fallen to critically low levels as the conflict continues to place sustained pressure on the country’s layered missile defence system.
To maintain its defence capabilities, Israeli lawmakers have approved an increase in the defence budget to NIS 143 billion (USD 45.8 billion).
Iran:
While Iran deploys relatively lower-cost systems (such as drones and older ballistic missiles), its expenditure remains substantial relative to its overall defence budget. Estimates suggest Iran launched between 470 and over 500 ballistic missiles at Israel within the first 25 days of the conflict, at a projected cost of around USD 6 billion—equivalent to nearly 20% of its 2026 defence budget.
Table 2: Key Munitions Usage at D+6 and FY 2026 Deliveries
|
Munition Type |
Estimated Number Expended in 6 Days |
Anticipated Deliveries in FY 2026 |
|
TLAM (Tomahawk) |
319 |
190 (Navy will receive 110) |
|
SM-3 |
83 |
76 |
|
SM-6 |
115 |
125 |
|
JASSM |
786 |
0 |
|
PrSM |
86 |
70 |
|
PAC-3 MSE |
139 |
172 |
|
THAAD |
158 |
0 |
|
Source: CSIS (Authors' estimates using FY 2026 DOD budget documents) |
||
Figure 2: Estimated total cost of Operation Epic Fury at D+12 (USD, millions)
Source: CSIS (Authors' estimates using FY 2026 DOD budget documents)
The "Drone Revolution"
This conflict has highlighted the rapid “democratisation” of air power through the use of low-cost, autonomous systems. In recent years, few military technologies have reshaped warfare as rapidly as drones.
Iran has been a heavy user of drones, particularly in the early stages of the war. The data (930 drones and 269 missiles by Day 4) represent roughly half of the total reported launches (more than 2,000 drones and 500 ballistic missiles by Day 4). For comparison, Russian missile and drone launches have at times reached 700 per day, while Iran sustained similar levels only during the first few days of the conflict.
The subsequent decline reflects U.S. and Israeli strike campaigns targeting Iran’s missile and drone inventories, manufacturing facilities, and launch systems. The Israel Defense Forces reported that 70% of Iran’s ballistic missile launchers had been disabled by Day 16. Without such disruptions, drone deployment levels would likely have been even higher.
On the other hand, while large-scale drone deployment was less practical for the U.S. due to distance constraints, the conflict marked an early shift in American drone doctrine. It saw the combat debut of the LUCAS (Low-Cost Unmanned Combat Attack System). Although exact deployment numbers remain classified, the Pentagon confirmed that “dozens” were used in initial strikes to neutralise Iranian radar systems—supporting earlier remarks by the U.S. president on reducing the need for boots on the ground.
This “drone revolution” represents a fundamental shift in modern warfare and is likely to shape the future conduct of war.
Figure 3: Hotspots for drone warfare in 2026
Table 3: DOD-released figures on Iranian Launces
|
Launch Capacity |
UAS (Drones) |
Ballistic Missile |
|
First 100 hours |
Launched 2,000+ |
Launched 500+ |
|
Day 6 (March 5) |
Down 83 percent |
Down 90 percent |
|
Day 11 (March 10) |
Down 83 percent |
Down 90 percent |
|
Day 14 (March 13) |
Down 95 percent |
Down 90 percent |
|
Source: CSIS (Authors' estimates using FY 2026 DOD budget documents) |
||
Figure 4: UAS detections or interceptions, as reported by Bahrain, Kuwait, Saudi Arabia, and the UAE, Days 1-23
Global X Defense Tech (SHLD)
The Global X Defence Tech ETF remains a vehicle for gaining exposure to both traditional defence and the increasing role of technology in warfare. The ETF spans sectors such as industrials, cybersecurity, artificial intelligence, and drone systems.
Its holdings include companies such as RTX and Lockheed Martin, which are key beneficiaries of the supplemental defence budgets being approved in Washington, D.C., and Tel Aviv.
Table 4: Top 10 companies within the Global X Defense Tech ETF
|
Company |
Segments |
Most Popular Goods/Services |
Latest Large Contracts (2025-26) |
Country |
|
Lockheed Martin (LMT) |
Aerospace, Missiles, Software |
F-35 Stealth Fighter, HIMARS, PAC-3 (Patriot), THAAD, PrSM |
Quadrupling THAAD production (Jan 2026); Accelerated PrSM ballistic missile surge (Mar 2026). |
US |
|
RTX Corp (RTX) |
Aerospace, Missiles, Software |
Tomahawk Cruise Missiles, SM-3/6 Interceptors, AMRAAM, Patriot Radar |
7-year deal to increase Tomahawk production to 1,000+ units/year (Feb 2026). |
US |
|
General Dynamics (GD) |
Aerospace, Tanks, Marine |
M1 Abrams Tank, Virginia-class Submarines, Gulfstream Jets |
$988M Navy C5ISR Modernization (Jan 2026); Nuclear submarine expansion (Late 2025). |
US |
|
Palantir (PLTR) |
Software |
Project Maven (AI Targeting), Gotham, Foundry (Data Analytics) |
Expansion of Project Maven to a permanent Pentagon-wide program (Mar 2026). |
US |
|
Rheinmetall (RHM) |
Tanks, Missiles, Software |
Leopard 2 Gun/Ammo, Lynx IFV, HERO Loitering Munitions |
€200M NATO order for 120mm tank ammunition (Feb 2026) to backfill European stocks. |
Germany |
|
Hanwha Aerospace |
Aerospace, Tanks, Missiles |
K9 Thunder Howitzer, Chunmoo MLRS, Redback IFV |
Multi-year "K9PL" howitzer deliveries to Poland through 2026; Romania chassis supply (2025). |
S. Korea |
|
L3Harris (LHX) |
Aerospace, Software, EW |
Tactical Radios, THAAD Rocket Motors, Electronic Warfare (EW) |
$400M contract for THAAD propulsion and attitude control systems (Feb 2026). |
USA |
|
Northrop Grumman (NOC) |
Aerospace, Missiles, Software |
B-21 Raider Bomber, Global Hawk, IBCS (Battle Management) |
Deal to accelerate B-21 production expansion (Mar 2026); IBCS network rollout. |
USA |
|
BAE Systems (BA) |
Aerospace, Tanks, Software |
Paladin Howitzer, Eurofighter, AMPV (Armored Vehicles) |
$500M Army contract for Paladin self-propelled howitzers (Feb 2026); THAAD seeker heads. |
UK |
|
Leonardo (LDO) |
Aerospace, Software, Electronics |
AW149 Helicopters, Eurofighter (consortium), Radar Systems |
£1B UK MoD contract for 23 AW149 Medium Helicopters (Mar 2026). |
Italy |
End of war does not reduce global defence demand - It Reinforces It
Because the war has depleted years of stockpiles in just 27 days, defence companies are shifting from “just-in-time” manufacturing to “maximum capacity” frameworks. This marks a transition from speculative growth to high-certainty, multi-year backlogs, as the countries seek to rebuild its “global magazine”.
Even prior to this conflict, defence demand was already firm. The Iran conflict represents a new chapter in global defence readiness. Regardless of when the war ends, it has already served as a wake-up call for countries worldwide on the importance of military preparedness.
As replenishment cycles and modernisation efforts advance simultaneously, defending against high-volume, low-cost, expendable systems is becoming critical. This shift expands the opportunity set for companies involved in drone production and the broader defensive ecosystem, including counter-drone technologies, air and missile defence systems, as well as directed-energy solutions.
Table 5: Valuation table
|
2025 |
2026F |
2027F |
2028F |
|
|
EPS (sen) |
102.3 |
116.6 |
136.5 |
158.45 |
|
EPS Growth |
43.86% |
13.98% |
17.07% |
16.08% |
|
Dividend yield (%) |
1.07 |
1.19 |
1.32 |
1.52 |
|
Forward PE (x) |
29.77 |
27.2 |
23.23 |
20.01 |
|
Fair PE (x) |
25 |
|||
|
Upside Potential |
25% |
|||
|
Current Price |
3173 |
|||
|
Target Price |
3964.268 |
|||
|
Source: Bloomberg Finance L.P., iFAST compilations. Data as of 27 April 2026. |
||||
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