3 Defense‑and‑Data Stocks at the Intersection of AI, Targeting, and Trump's Expanding Iran Defense Budget

Key Points

Palantir's Gotham platform provides target identification and analysis in battlefield situations.

AeroVironment makes drones that can conduct surveillance, communications, or conduct strikes.

You can also invest in an ETF for immediate diversification.

• 10 stocks we like better than Palantir Technologies ›

The war in Iran is racking up some big bills for the Pentagon. The Trump administration has asked Congress for $200 billion to finance the war -- and that comes on top of the White House's earlier announcement that President Donald Trump will increase the 2027 budget request for the military from $1 trillion to $1.5 trillion.

That has triggered a lot of interest in defense contractors and other companies that operate in the area of modern warfare, including companies involved with artificial intelligence (AI) for military applications. The Spade Defense Index, which tracks publicly traded companies involved with defense and homeland security, has been a top performer in recent weeks, having jumped 11% since March 30.

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Here are three top picks for investments that you can make to capitalize on the run-up in defense spending.

Palantir Technologies

Palantir Technologies (NASDAQ: PLTR) has a long history with the U.S. military. The data analysis company was credited with providing the intelligence that led to the capture of 9/11 mastermind Osama bin Laden back in 2011, and its contracts with the Pentagon and intelligence communities has only increased.

Palantir's military product is its Gotham platform, which is designed for defense, intelligence, and other military applications. Gotham uses artificial intelligence and ingests information from thousands of data points, including global satellite imaging, to provide AI-powered target identification and analysis. Military commanders and intelligence services can use Gotham when making real-time decisions in battlefield situations.

CEO Alex Karp said in an interview with Wired in November 2025. "You need high-end satellites, you need to be able to coordinate with the satellites, and you need software and large language models. It's advantageous for America because we're very strong in those areas."

Palantir's revenue in the fourth quarter was $1.4 billion, up 70% from a year ago. Of that, U.S. government revenue was $570 million, an increase of 66% from the same period the previous year.

AeroVironment

Based in Arlington, Virginia -- conveniently close to the Pentagon -- AeroVironment (NASDAQ: AVAV) is a military contractor specializing in drones and tactical missile systems. Its products include small, unmanned aircraft and tactical missile systems.

Its most recent product, announced just this month, is the Mayhem 10, an unmanned system capable of providing surveillance, electronic warfare, communications, and precision strikes. The product has a range of about 62 miles and carries a payload of 10 pounds.

"Mayhem 10 sets a new standard for operational versatility and survivability on the modern battlefield," CEO Wahid Nawabi said.

AeroVironment has numerous military contracts, and its revenue in the third quarter of fiscal 2026 (ending Jan. 31) was $408 million, up 143% from a year ago.

Invesco Aerospace & Defense ETF

If you can't decide on a specific name, then a great option is to pick an exchange-traded fund (ETF). The Invesco Aerospace & Defense ETF (NYSEMKT: PPA) tracks the Spade Defense Index discussed earlier, mirroring its returns. With $8.3 billion in assets under management and an expense ratio of 0.58% (or $58 annually on a $10,000 investment), PPA is a convenient way to capitalize on the run-up in defense spending.

PPA is a market-cap-weighted ETF with adjustments -- it ensures that no single stock has a weighting of more than 10%. Sixty companies are represented in the ETF right now, and the top five holdings have a market weighting of 36.2%, which means you won't be overexposed to any specific name.

| Company | Weighting in PPA | Year-to-Date Performance | |---|---|---| | | 8.45% | 4.2% | | | 8.07% | 0.7% | | | 7.63% | 8.1% | | | 7.15% | 22.9% | | | 4.95% | 17.2% |

PPA provides investors with access to some of the biggest defense contractors who will be supporting the Pentagon in the Iran war, while offering the benefit of instant diversification.

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Patrick Sanders has positions in Palantir Technologies. The Motley Fool has positions in and recommends AeroVironment, Boeing, GE Aerospace, Palantir Technologies, and RTX. The Motley Fool recommends Lockheed Martin. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.