The Security Supercycle: Investing in Innovation, Resilience, and Rearmament

A self-reinforcing security supercycle is making rearmament a structural force that reshapes government budgets, industrial capacity, technology adoption, and capital allocation.

• Global defense spending rose 41% over the past decade to a record $2.89 trillion in 2025, equal to 2.5% of global GDP and the highest share since 2009.
• The United States surpassed $1 trillion in defense spending in FY2026, while its requested FY2027 budget of $1.5 trillion would be 38% higher in real terms; China’s spending has increased more than thirteenfold since 1995.
• Strategic competition is spreading beyond the major powers: Japan increased defense spending by almost 10% in 2025 and is considering a 3.5% GDP target, while India, Taiwan, and the Philippines raised spending by 9%, 14%, and 12%, respectively.
• European defense spending more than doubled over the past decade, and spending by European NATO members reached an estimated $563 billion in 2025, 55% above 2022 levels; the alliance is moving toward a 3.5% GDP target for core defense.
• Modern warfare is shifting toward inexpensive unmanned systems and AI-enabled software: drones account for more than 80% of strikes against enemy targets in Ukraine, while Iranian Shahed drones cost an estimated $35,000–$50,000 versus about $4 million for a Patriot interceptor.

Takeaway: Investors should view defense, dual-use technology, advanced manufacturing, energy security, critical minerals, and resilient infrastructure as beneficiaries of a durable spending cycle, while recognizing that geopolitical escalation and supply-chain constraints remain key uncertainties.