Global X Defense Tech ETF Posts Strong Returns Amid Surging Sector Demand

Defense Technology Sector Experiences Significant Gains

The Global X Defense Tech ETF (SHLD) has demonstrated substantial growth, recording an 80% return over the past twelve months. This performance has culminated in an upgrade of the ETF to a Strong Buy rating, reflecting robust market confidence in the defense technology sector.

The Event in Detail: Unprecedented Demand Fuels Growth

SHLD's impressive 80% return over the past year is attributed to a confluence of factors, including record financial growth and robust order backlogs across the defense technology industry. This momentum is further amplified by surging global defense spending and escalating geopolitical tensions worldwide. The ETF, launched in September 2023, focuses on companies at the forefront of "defense tech," including leaders in cybersecurity, AI data, and advanced military hardware.

Key holdings within the SHLD ETF have showcased exceptional individual performance:

• Palantir Technologies Inc. (PLTR), the largest holding, saw its stock price increase nearly 299% in the last twelve months. The company anticipates approximately $4.1 billion in annual revenue for 2025, marking a 45% increase from the previous year, with earnings per share projected to grow by 65% year over year in 2025. Palantir's revenue grew 47.5% year over year in its latest quarter, and its third-quarter and full-year outlook have been raised.
• Rheinmetall AG (RNMBF), the second-largest holding, experienced a nearly 299% increase in its stock price over the past twelve months, with revenue expected to rise by 25% to 30% year over year in 2025.
• RTX Corporation (RTX), the third-largest holding, rallied 33% in its share price over the last twelve months and reported a 16% year-over-year climb in its backlog, reaching $236 billion.
• Britain-based BAE Systems plc (BAESF) saw its stock price surge 57% in the same period.

Other significant contributors to the sector's robust financial growth include Lockheed Martin (LMT), General Dynamics (GD), and Northrop Grumman (NOC). General Dynamics, for instance, reported a record backlog of $103.7 billion, with revenue boosting 8.9% year over year to $13 billion and earnings per share jumping 14.7% to $3.74.

Analysis of Market Reaction: Geopolitical Shifts Drive Investment

The market's strong positive reaction to the defense technology sector is largely driven by intensifying geopolitical conflicts and increased national security priorities across the globe. This environment has fostered a "new supercycle" of defense spending, with governments prioritizing modernization efforts focused on cyber capabilities, space systems, and next-generation military technologies.

Global defense budgets collectively surged by 9% in 2024. Notably, European nations are projected to increase their defense allocations at an annual rate of 6.8% through 2035, outpacing the U.S., Russia, and China. In the U.S., a proposed 13% increase in the 2026 defense budget underscores sustained tailwinds for the sector. NATO's 2025 mandate for member states to meet or exceed 2% of GDP in defense spending further solidifies this trend, signaling a strategic shift toward enhanced defense capabilities.

Broader Context & Implications: A Strategic Reorientation

The extraordinary demand for advanced defense technologies, particularly those incorporating artificial intelligence (AI), drones, cybersecurity, robotics, and space technology, is expected to sustain the aerospace and defense industry's performance. Defense contractors are currently sitting on record backlogs, providing significant long-term revenue certainty. General Dynamics reported a Q2 2025 book-to-bill ratio of 2.2-to-1, with a total backlog exceeding $103.7 billion. Similarly, MDA Space's backlog swelled to $6 billion, and Astronics Corporation holds a $645.4 million backlog, 75% of which is expected to be recognized within 12 months.

Innovation is accelerating, supported by $31 billion in venture funding for defense tech in 2024. Companies like Palantir are at the forefront of this technological shift, with its Maven Smart System (MSS) integrating satellite imagery, drone feeds, and geolocation data to enable real-time sensor-to-shooter workflows. This system is a critical component of the Department of Defense's (DoD) Combined Joint All-Domain Command and Control (CJADC2) initiative, capable of reducing targeting time from days to minutes.

Expert Commentary: Analyst Optimism for Key Players

Market analysts have expressed growing optimism regarding the sector's trajectory, particularly for leading companies. Bank of America analyst Mariana Pérez Mora raised her price target for Palantir to $215, citing the company's "breakthrough performance" in government contracts and AI-driven platforms. This sentiment is echoed by Wedbush's Daniel Ives and HSBC, who also raised their price targets for Palantir to $200 and $181, respectively. While 17 analysts remain divided, the average price target of $166.12 suggests a consensus floor for valuation.

Looking Ahead: Sustained Growth with Identified Headwinds

The outlook for the defense technology sector suggests a sustained period of high demand and investment. Ongoing geopolitical developments, consistent government budget allocations, and continued advancements in AI, cybersecurity, and autonomous systems are expected to be key drivers. The SHLD ETF's focused exposure to these technologies, coupled with its strong momentum and high liquidity, positions it as an attractive investment for both short- and long-term investors.

However, potential risks and headwinds warrant consideration. A primary concern is concentration risk, as SHLD holds just 45 companies, with its top 10 positions accounting for 62% of its assets. Sharp drawdowns in major holdings could disproportionately affect the ETF's performance. Volatility also remains elevated for SHLD, with its annualized volatility at 22.7%, approximately 31% above the ETF median, indicating a higher degree of price fluctuation. Furthermore, while defense budgets are currently expanding, government spending is politically cyclical, and fiscal tightening in Western economies could eventually slow contract growth, presenting an ongoing headwind for the sector.