Rising government borrowing costs, reflected in higher yields on 10 year bonds in markets such as Japan, Canada and the Euro Area, keep defense budgets firmly in focus. Debt needs funding; at the same time, security commitments remain. That mix keeps attention on companies in the Aerospace And Defense screener. This article highlights three stocks from that group and explains how they might fit into a diversified portfolio today.

The three stocks below are just a starting sample. The full screen surfaced 73 more Aerospace and Defense companies with equally detailed stories that are not covered here. To identify and analyze those additional opportunities with your own filters, head straight to the Aerospace And Defense screener.

Redwire (RDW)

Redwire is a space infrastructure and defense tech company that builds the sensors, avionics and spacecraft platforms that sit directly on the aerospace and defense value chain, from star trackers and sun sensors to space situational awareness and RF payloads. The business is spread across two segments that are broadly similar in size, with about $208 million from Space and $217 million from Defense Tech, and it serves customers in the U.S., Europe and other regions. Redwire has a market cap of roughly $3.0 billion, which places it in the small to mid cap bracket for listed defense related stocks.

Investors looking at the space side of aerospace and defense may find Redwire interesting because it already supplies many of the high value subsystems that sit inside government and commercial missions, and is building a sizeable backlog around $542 million as of its Q2 2026 update. The company is pushing into new areas such as in space manufacturing and pharmaceutical payloads, alongside uncrewed aerial systems from the Edge Autonomy acquisition, which could help shift its unprofitable profile if higher margin work scales. That said, heavy reliance on complex government contracts, ongoing losses and shareholder dilution mean execution and governance still matter a lot. If Redwire can convert its pipeline and new facilities into more predictable earnings, the current story around advanced space infrastructure could look very different a few years from now.

Redwire’s unprofitable profile and significant government exposure could be obscuring the true value of its advanced space infrastructure. Before you decide how it fits your portfolio, review the 2 key rewards and 3 important warning signs (2 are major!)

Rocket Lab (RKLB)

Rocket Lab is a space company that designs and launches rockets and builds satellites and related systems for commercial, government and defense customers, making it closely tied to aerospace and defense through its launch services and spacecraft platforms. Most revenue comes from the Space Systems segment at about $544 million, with Launch Services contributing around $225 million, reflecting a business that earns more from satellites and on orbit services than from selling rocket launches alone. The stock has a market cap of roughly $43.4 billion, placing Rocket Lab firmly in the large cap end of listed space and defense related companies.

Rocket Lab provides exposure to both sides of the space infrastructure story. Its Electron launches and growing Neutron program anchor it in the launch market. The larger Space Systems segment, together with a growing backlog linked to recent US Space Force contracts and the planned Iridium acquisition, ties it directly into defense grade satellites and services. The company is still loss making and relies on external funding, so delays or cost overruns on Neutron or large defense programs could weigh on the path to profitability. For investors willing to accept those risks, Rocket Lab offers a way to gain exposure to the build out of space as critical infrastructure rather than just a collection of one off launches.

Rocket Lab’s push into space infrastructure is accelerating, yet many investors still focus only on the rockets. Get the fuller picture and see how key risks and contract exposure line up in the 2 key rewards and 3 important warning signs

Kratos Defense & Security Solutions (KTOS)

Kratos Defense & Security Solutions is a defense technology company best known in this theme for its unmanned aerial systems and propulsion work, including jet powered drones, loitering munitions and hypersonic and missile propulsion for U.S. and allied defense customers. The business is still anchored by the Kratos Government Solutions segment at about $1.2b of revenue, with Unmanned Systems contributing roughly $317 million, so its drone and propulsion platforms are important but not the only part of the story. Kratos has a market cap of around $10.7b, placing it firmly in the mid to large cap bracket within aerospace and defense.

Kratos provides direct exposure to some of the most sought after areas in defense today, from Valkyrie combat drones and loitering munitions to hypersonic and missile propulsion, backed by a growing backlog and long term government programs. The company is investing heavily in new facilities and engine capacity and is partnering with larger contractors, which could support higher margins if volume ramps materialize. At the same time, a premium valuation, reliance on a concentrated set of suppliers and significant spending needs mean execution and funding discipline are important. For investors interested in how unmanned systems and propulsion may influence future defense budgets, Kratos is a stock that some may choose to monitor more closely.

Kratos is ramping up unmanned systems and propulsion work, yet many investors may be missing how its growth story links to long-term contracts and funding needs. For the fuller context, see the analysis report for Kratos Defense & Security Solutions

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.