While investors obsess over record highs in the S&P 500 and Nasdaq 100, one sector quietly crushed them both last quarter, and real money is pouring in fast.

In the first half of 2025, the iShares U.S. Aerospace & Defense ETF (NYSE:ITA) surged 25%, marking the fund's best half-year performance since inception. That's a 20 percentage point outperformance over the Vanguard S&P 500 ETF (NYSE:VOO) and 17 points above the tech-heavy Invesco QQQ Trust (NASDAQ:QQQ).

Defense Stocks Crushed Tech In Last Quarter's Rally

But the blowout mainly occurred in the second quarter. The ITA ETF surged 23.2% between April and June, its best quarter ever, outpacing the Nasdaq 100's sharpest rally since early 2023 by five percentage points.

Crucially, this isn't just momentum chasing. Investors have committed capital, with ITA notching 10 straight weeks of inflows through July 10—the longest stretch since early 2023.

Best Defense Stocks In 2025

Among ITA's top holdings, nine of the top 10 are firmly in the green for the year as of July 10, with only Lockheed Martin Corp. (NYSE:LMT) trailing. Here’s a look at how the biggest names are performing:

Why Is The Defense Sector Booming?

This rally in defense stocks isn’t just about earnings—it's about Washington policy, global geopolitical risks, and budget flows.

Following years of underinvestment, Trump's return to the White House has kicked off a rearmament cycle.

On July 4, Trump signed the "One Big Beautiful Bill Act", unlocking $156.2 billion in targeted defense funding—the Pentagon's biggest budget infusion in over a decade.

What's Inside The New Defense Bill?

The funding, detailed in Title II of the act, includes:

• $29.2 billion for shipbuilding
• $24.4 billion for integrated air and missile defense – the "Golden Dome" initiative
• $25.4 billion for munitions and supply chain resilience
• $16.0 billion for low-cost weapons scaling
• $8.6 billion for air superiority projects
• $10.8 billion for nuclear force upgrades

Defense Stocks Wall Street Is Watching Now

In a note shared earlier this week, Goldman Sachs analyst Noah Poponak flagged four defense contractors as top beneficiaries of the Pentagon’s defense spending:

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