Jefferies Highlights Top Defense Tech & Space Stocks for 2026

Jefferies Financial Group issued a new research note on June 9, 2026, outlining its top investment ideas within the defense technology and space sectors. The institutional broker highlighted a select group of companies positioned to capitalize on increased global defense budgets and the maturation of the commercial space market. The analysis points to a combined market opportunity exceeding $50 billion in incremental spending over the next three years.

Context — why this matters now

The global defense budget trajectory has shifted significantly since the escalation of major power tensions in Eastern Europe in February 2022. NATO member states have committed to sustained spending increases, with the alliance's combined defense expenditure reaching $1.4 trillion in 2025. This represents a 25% increase from pre-2022 levels, creating a durable tailwind for defense contractors and technology enablers.

Current macroeconomic conditions further support sector investment. With the 10-year Treasury yield stabilizing near 4.2%, investors are rotating into sectors with visible long-term revenue streams. Defense contracting, often backed by multi-year government agreements, offers a hedge against economic uncertainty. The space economy, once considered speculative, is now demonstrating concrete revenue models through satellite broadband and Earth observation.

The immediate catalyst for Jefferies' report is the upcoming FY2027 budget submission cycle for the U.S. Department of Defense. Early indications suggest a heightened focus on modernizing command, control, communications, computers, intelligence, surveillance, and reconnaissance (C4ISR) systems. This prioritization directly benefits firms specializing in cybersecurity, satellite communications, and advanced sensors.

Data — what the numbers show

Jefferies' analysis singles out several companies with explicit price targets and growth projections. The firm assigned a buy rating to Rocket Lab USA (RKLB) with a $12 price target, implying a 45% upside from its current trading level near $8.30. The satellite launch provider is projected to grow revenue by 60% in 2026 to approximately $650 million.

The defense technology firm L3Harris Technologies (LHX) received a price target of $285, a 22% increase from its present value. Jefferies forecasts LHX's operating margin will expand by 150 basis points to 15.5% by the end of 2027. This compares to the sector median operating margin of 13.2%.

A comparison of key valuation metrics reveals the selective nature of the recommendations.

Company	Ticker	Forward P/E	Projected 2026 Revenue Growth
Rocket Lab USA	RKLB	38x	60%
L3Harris Technologies	LHX	18x	8%
Sector Median	-	22x	12%

The broader iShares U.S. Aerospace & Defense ETF (ITA) has gained 14% year-to-date, outperforming the S&P 500's 8% return. Trading volume in ITA options increased 30% over the past week, indicating rising institutional interest.

Analysis — what it means for markets / sectors / tickers

The recommendations signal a strategic shift towards companies with high-growth technology exposure rather than traditional prime contractors. Pure-play space companies like RKLB and AST SpaceMobile (ASTS) stand to benefit from the increased classification of space as a contested domain, requiring resilient communications infrastructure. This could divert capital from legacy satellite operators with older technology stacks.

Second-order effects are likely in the semiconductor and electronics manufacturing services sectors. Companies like Texas Instruments (TXN) and Flex Ltd. (FLEX) supply critical components for missiles, drones, and satellite constellations. An increase in defense production volumes could add 3-5% to their annual revenue. Conversely, commercial aerospace suppliers may face margin pressure as defense contracts prioritize security and reliability over cost.

A key risk to the thesis is potential budget dysfunction or delays in the U.S. congressional appropriations process. A continuing resolution instead of a full-year budget could push contract awards into 2027, dampening near-term earnings growth for the sector. Flow data indicates hedge funds have been net buyers of defense IT services names over the past month, while taking profits in large-cap aerospace primes.

Outlook — what to watch next

The primary near-term catalyst is the release of the detailed U.S. Pentagon budget request, expected by July 15, 2026. Investors will scrutinize the unclassified budget justification documents for specific program funding levels in areas like the Pacific Deterrence Initiative and missile defense.

Earnings reports from L3Harris Technologies on July 24 and Rocket Lab on August 5 will serve as critical checks on execution. Management commentary on order backlog growth will be more significant than quarterly revenue figures. For LHX, investors will monitor whether its backlog surpasses the $24 billion threshold.

Technical levels to watch include the $250 support level for LHX, which has held as key support three times over the past year. A sustained break above $265 on high volume would confirm the bullish technical setup. For the ITA ETF, the $130 level represents major resistance; a weekly close above it would signal institutional accumulation.

Frequently Asked Questions

What does Jefferies' defense stock list mean for retail investors?

Jefferies' focus on defense technology and space offers retail investors a roadmap to higher-growth niches within the broader aerospace and defense sector. The analysis suggests that the greatest alpha generation will come from companies enabling multi-domain operations, such as satellite connectivity and electronic warfare, rather than traditional aircraft manufacturers. Retail investors should note the elevated volatility and valuation premiums associated with these sub-sectors compared to established primes.

How does the current defense budget cycle compare to the 1980s Reagan buildup?

The 1980s buildup focused on quantitative superiority in platforms like ships and bombers, with defense spending peaking at 6.2% of U.S. GDP. The current cycle is qualitatively different, emphasizing technology integration and information warfare. Today's defense budget is approximately 3.5% of GDP, but a larger portion is allocated to Research, Development, Test, and Evaluation (RDT&E), which has grown from 10% of the budget in the 1980s to over 15% today.

Which companies are the major contractors for the Pentagon's JADC2 initiative?

The Joint All-Domain Command and Control (JADC2) initiative is a multi-billion dollar effort to connect sensors from all military services into a single network. Major contractors include L3Harris Technologies and Northrop Grumman for battle management systems, Lockheed Martin for integration and simulation, and smaller tech firms like Palantir Technologies for the data analytics layer. JADC2-related contracts are expected to be awarded in the fourth quarter of 2026.

Bottom Line

Jefferies is betting on defense technology and space stocks to outperform on durable budget trends and technological disruption.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. CFD trading carries high risk of capital loss.