President Donald Trump's defense budget, released Wednesday, showed requests for more missiles and drones but fewer ships and F-35 fighter jets, according to reports. European defense stocks traded higher Thursday after NATO allies agreed to increase defense spending. Kratos Defense fell Thursday after filing for a new $500 million underwritten offering.
The U.S. defense and national security budget is $892.6 billion for next year. That is flat compared to the current year's request. But there are quite a few changes in terms of weapons requests and priorities.
For the 2026 budget, Trump requested fewer Lockheed Martin F-35 fighter jets and only three warships, Reuters reported. The new budget seeks 47 fighter jets, down from the 68 F-35 fighters requested for fiscal 2025. The draft bill from the House Appropriations Committee originally requested 69 jets.
The DOD will procure a Virginia-class ship made by General Dynamics and Huntington Ingalls, as well as 15 other ships via a separate appropriation bill, according to the Navy. The 2025 budget requested six ships, documents show. That included one Virginia-class submarine, two Arleigh Burke-class destroyers, one frigate, one San Antonio-class amphibious transport, and one medium landing ship.
The proposed budget includes a 3.8% pay raise for troops, offset by retiring older weaponry, ships and planes. Under the plan, the Navy would cut 7,286 employees from its civilian workforce.
The Air Force plans to invest in Joint Air to Surface Standoff Missile – Extended Range and Long Range Anti-Ship missiles, which are made by Lockheed Martin. But the budget requests fewer of Lockheed's Precision Strike Missiles, which will replace the Army Tactical Missile used in Ukraine.
Small drones also saw an increase in spending in the budget. The request also included nuclear weapons-related activities performed by the Department of Energy and higher funding for homeland security. Trump's Golden Dome missile defense system was included in a separate budget request.
Defense Stocks React
Defense stocks climbed Thursday after the budget request was released.
HII stock advanced 2%, to retake a 238 flat base buy point.
GD shares rose 1.9%, pushing above a 286.80 saucer-with-handle entry.
RTX climbed about 1%. Shares have slid back into a buy zone for a consolidation following its May 16 breakout.
Drone maker AeroVironment jumped nearly 16%, continuing its rally after its earnings report on Wednesday.
Joby Aviation, another drone maker, surged 11.3% Thursday.
Lockheed Martin stock ticked down slightly.
Kratos To Raise $500 Million
However, Kratos Defense was highly active early Thursday.
Shares retreated 2.4% Thursday after the Texas-based contractor filed to raise $500 million in an underwritten offering of common stock shares. The proposal includes an option for underwriters to purchase up to $75 million in additional shares.
Kratos plans to use the funds for investments and scaling for different program awards, financing acquisitions, and general corporate purposes.
Still, KTOS stock is up 56.7% in 2025.
NATO Hikes Spending
Elsewhere, NATO countries on Wednesday largely agreed to hike their military spending, in order to appease Trump's demand.
The NATO members pledged to allocate up to 5% of their national GDP to defense and related sectors by 2035, according to reports. The commitment includes a review in 2029 to evaluate progress and assess Russian threat developments.
The U.K. expects to spend at least 4.1% of their GDP on defense by 2027. Spain, as previously stated, will not meet the 5% target and will instead stick with its 2% allocation. Belgium raised concerns that the timeline is unrealistic, while Slovakia said it reserves the right to make independent decisions about its military spending.
The new target includes 3.5% for "core defense spending," up from a prior target of 2%. The other 1.5% will go toward "military adjacent" projects, the New York Times reported. Those would include improved roads and bridges, better emergency health care and cybersecurity issues.
European defense stocks shifted higher during their Thursday trade.
Rheinmetall surged 7.1%. BAE Systems climbed 4.6%. Airbus rose 3.6%.
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