Tanks or drones? Defense earnings reveal a more complicated rearmament boom

Drone technology and artificial intelligence are rapidly reshaping modern warfare, but the world’s biggest defense contractors are finding that demand for tanks, fighter jets and other traditional military equipment remains strong.

Recent earnings from U.S. and European defense companies show conventional weapons continue to drive year-on-year growth, even alongside surging demand for advanced sensors, autonomous systems and counter-drone technology.

Rather than displacing traditional weapons manufacturers, the rise of drones and autonomous warfare is creating new business for many of the same companies. 

From counter-drone defenses to advanced sensors integrated into tanks and fighter jets, the technologies transforming the battlefield are also changing, or even expanding, the markets served by legacy defense giants.

Lockheed Martin reported a 24% jump in revenue from its missiles business in the third quarter, while RTX secured multibillion-dollar contracts for established missile systems. In Europe, German defense supplier Renk saw orders for its military vehicle business surge 46% in the first nine months of the year.

Yet, the same earnings also show how the boundaries between legacy weapons and emerging defense technology are increasingly blurred.

German defense electronics company Hensoldt reported a 52% jump in revenue from its optronics business, with its chief financial officer telling CNBC that much of the growth came from conventional military equipment, including tanks and armored vehicles.

Meanwhile, Rheinmetall’s air defense business, which includes counter-drone systems, reported 63% revenue growth, even as the wider company cut its full-year outlook, citing project delays.

The rise of drones is transforming traditional military platforms rather than replacing them, with tanks and other weapons increasingly integrated into connected, data-driven battlefield networks, according to Morningstar. 

Over the past five years and since Russia’s full-scale invasion of Ukraine in early 2022, defense primes have seen their order books swell amid higher military spending among governments globally. 

Yet, analysts mostly say that the rearmament boom is structural, and even an end to wars in Ukraine and Iran won’t derail it. Crucially, Europe now has to play catch-up amid increasing uncertainty over U.S. security guarantees and Russia’s next move, after decades of military underfunding.

However, concerns that valuations had run ahead of the industry’s ability to deliver dented defense stocks this year amid several instances of project delays and contract cancellations.

Advancements in modern warfare and technology – as proven by Ukraine’s use of drones on the front lines – further hit investor confidence in defense contractors amid worries that new technologies may displace demand for traditional military…