Artisan Canvas Header Background
Artisan Canvas
Your reply has been posted successfully!

Playing Defense

09 May 2024   |  

In 2023, global defense spending reached a historic high of $2.4 trillion, reflecting a 6.8% increase from the previous year—the largest since 2009. This surge, illustrated in the chart below underscores how widespread defense spending has grown in recent years, with increases across all major geographical regions. Analysts attribute this rise to mounting global tensions, a dwindling sense of security and rapid technological advances (e.g., artificial intelligence, robotics and the Internet of Things) changing how militaries operate. Confirming this shift, the United Nations reported that conflicts have been on the rise since about 2012.

Source: SIPRI, 2024.

The defense industry, which is comprised of both public and private entities, gained momentum after World War II and has become a cornerstone of national security strategies. The US allocated close to $916 billion to defense in 2023, from $877 billion in 2022, with about half of that money going to private defense contractors. Since Russia’s 2022 invasion of Ukraine, defense spending by NATO and EU member states has hit record highs and is forecast to increase significantly through at least 2028. Cumulative defense spending could add €700 billion–€800 billion to total spending over the period. Moreover, Australia recently announced a major boost to its defense budget of around $32 billion per year reaching 2.4% of its GDP over the next decade.

The Artisan Global Equity Team includes defense as part of its infrastructure investment theme where analysts research structurally advantaged companies with hard-to-replicate assets. Some examples of companies are BAE Systems, LIG Next1 and Hanwha Aerospace, which the team believes are particularly well positioned given the geographies they serve in Europe, North America and Asia Pacific. This advantage has helped these businesses generate solid top- and bottom-line growth for the past several years, as well as expand profit margins. Growth in 2023 was particularly robust. In addition, these companies and others in the industry benefit from recent semiconductor legislation enacted in the US, EU and South Korea which provides further support for the high-tech equipment and systems they produce.

One metric in particular the team considers as it researches defense companies is book-to-bill, the ratio of orders received to the orders shipped and billed. It is an important indicator of current demand for a company’s products. BAE Systems, LIG Next1 and Hanwha Aerospace currently have growing book-to-bill ratios and valuable order backlogs―representing future earnings for the firm—that we believe are not fully reflected in current valuations. And for South Korean-based Hanwha Aerospace, much of the current backlog (71%) is comprised of higher-margin exports to high-demand countries such as Romania and Poland, which could push operating profits higher over time.

Recent events have shown that having well-positioned defense capabilities and assets matters in both peacetime and in war. As governments invest more in protecting their citizens and borders, the Artisan Global Equity Team will continue to seek out defense companies within the infrastructure theme that meet its quality, sustainable growth and valuation criteria as have these three companies.


Artisan Partners Global Equity Team manages portfolios which held securities issued by BAE Systems, LIG Nex1 and Hanwha Aerospace as of 3/31/24.  Portfolio securities are subject to change.

  • Global Equity

Contact the Editorial Staff

Have a question or comment? We welcome your feedback. Comments will not be made public, but will be read by a member of our editorial staff.