Defense stocks have been treated as geopolitical barometer. When tensions rise and military conflict breaks out, shares climb. When headlines cool, the trade fades. It's a narrative built around procurement cycles and crisis-driven spending. The attack on Tehran on Saturday by Israel and the U.S. should repeat this pattern for defense stocks in coming days.
But something more structural and long-term has been unfolding, something that looks far less like a one-off weapons sale and more like a long-term service contract. Parts of the defense industry are beginning to resemble subscription businesses, recurring revenue layered on top of a growing installed base.
For investors focused on earnings durability rather than war headlines, that distinction matters.
Weapons systems have evolved from disposable purchases to multi-decade ecosystems nowadays. Once a country fields a fleet of fighter jets, missile defense batteries, or naval destroyers, it commits to years or even decades of operating and support costs.
The Government Accountability Office has repeatedly noted that operating and support costs can account for roughly 70% of a major weapon system's total life-cycle cost, according to recent GAO report. Upkeep includes spare parts, depot maintenance, training, software updates, systems integration and availability guarantees. Since national defense cannot tolerate downtime, readiness spending tends to persist even when procurement ebbs.
In practical terms, the contractor that builds the platform often remains embedded in its upkeep. Every additional aircraft delivered expands the pool of long-term maintenance, logistics and modernization revenue.
That dynamic increasingly resembles aerospace aftermarket economy (and, in some respects, enterprise software) where installed bases drive recurring cash flow. Three companies that stand to benefit: Lockheed Martin (LMT); RTX (RTX) and Northrop Grumman (NOC).
Lockheed Martin: The ecosystem model: Lockheed Martin provides the clearest example of this shift. The F-35 program represented 26% of consolidated net sales in 2024, according to the company's latest Form 10-K. The filing explicitly states that F-35 revenue includes development, production, and maintenance, underscoring how support and logistics are embedded in the program's economy.
Service sales increased in 2024, driven in part by higher volume on F-35 upkeep contracts, the company disclosed in that same annual report.
By the end of 2025, Lockheed Martin reported a record $194 billion backlog and strong free cash flow generation in its full-year earnings release. That backlog provides multi-year revenue visibility that many industrial companies lack.
Support performance is not immune from scrutiny; a Pentagon watchdog has recently criticized aspects of F-35 maintenance and aircraft availability. Recurring revenue in defense is contractual and performance-based, not automatic.
Even so, the installed-base effect is unmistakable: every aircraft delivered expands a long-term revenue stream tied to readiness and modernization.
RTX: Installed base, diversified: RTX offers a different version of installed-base economy. The company has recently reported strong sales growth and highlighted a backlog approaching $268 billion, according to its latest earnings results.
On the defense side, missile systems and air defense platforms require ongoing upgrades and upkeep. Collins Aerospace operates within a vast installed base of aircraft systems that generate recurring parts and maintenance demand, the approach the company emphasizes in its investor materials.
Commercial aftermarket revenue behaves in many ways like an annuity tied to flight hours, while defense modernization cycles add a second layer of durability. The combination smooths earnings compared to pure production-driven models.
Northrop Grumman and the long arc of modernization: Northrop Grumman's portfolio is heavily weighted toward advanced systems - stealth aircraft, space assets, sensors and mission technologies.
Once fielded, those systems demand continuous upgrades and integration work as modern defense doctrine emphasizes ongoing modernization rather than static platforms. Sensors are refreshed. Software evolves. Networks expand. The company ended 2025 with backlog nearing $95.7 billion, according to its most recent annual report.
Northrop's strength in high-end systems integration positions it to benefit from that long modernization arc, although development-heavy programs can introduce project timing volatility.
The software layer: Defense as ongoing service: The transformation is perhaps the most visible in defense's growing digital footprint. The U.S. Defense Department's Joint Warfighting Cloud Capability contract vehicle reflects a shift toward acquiring commercial cloud services across classification levels.
Software-native companies like Palantir Technologies (PLTR) operate directly in that layer, providing analytics and AI systems through multi-year government contracts. Recent analyst coverage has highlighted the company's expanding government engagements and recurring revenue profile.
While valuation and volatility differ from traditional primes, the software layer most closely resembles true subscription economy within defense budgets.
The market may be behind the curve
Despite these structural shifts, defense contractors are often valued like cyclical industrial companies. The implicit assumption is that earnings are driven primarily by procurement wins and geopolitical events.
If maintenance, modernization and software continue rising as a share of revenue, that assumption will grow increasingly incomplete. Recurring support contracts and installed-base monetization can dampen earnings swings and support steadier free cash flow.
At the same time, intellectual property and data rights in maintenance contracts is a critical issue that the U.S. Government Accountability Office examined in its recent review of IP and sustainment planning. Control over technical data can shape who captures margin over the life of a program.
Markets tend to reward predictability. Businesses with durable cash flows often command stronger valuation multiples than those dependent on episodic demand. If defense contractors continue migrating toward service-heavy revenue mixes, the sector's risk profile may increasingly resemble infrastructure rather than crisis trade.
Defense stocks will continue to react to geopolitical headlines, but beneath those swings lies a structural evolution in how revenue is generated and sustained. The companies that control large, technologically complex installed bases -aircraft fleets, missile systems, naval platforms, secure networks - are not merely selling equipment. They are managing ecosystems that require continuous funding to remain operational.
This shift reframes the opportunity. Defense may no longer be just a trade on conflict. Increasingly, it resembles a long-duration cash-flow business anchored in readiness, modernization and software-driven support.
The market may still be pricing yesterday's model. Wars end. Maintenance contracts do not.
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