NATO allies have agreed to increase their defense spending to 5.0% of the gross domestic product (GDP) by 2035 – a dramatic increase from the previous 2.0% benchmark.
Additionally, President Trump has proposed a massive $150 billion boost to defense budget in his controversial tax-and-spending bill as well.
These developments will likely unlock billions in new procurement and modernization contracts, particularly in areas like radar systems, secure communications, and electronic warfare – domains where semiconductor innovation plays a critical role.
Against that backdrop, Mizuho’s senior expert Jordan Klein spotlighted two chipmakers: Analog Devices and MACOM – as potential beneficiaries of this expected surge in defense spending.
Both companies have growing exposure to military applications and are strongly positioned to capitalize on the sector’s evolving needs.
Analog Devices Inc (NASDAQ: ADI)
Analog Devices, a stalwart in the analog semiconductor space, has long maintained a presence in defense and aerospace markets.
While not its largest revenue stream, the segment, nonetheless, offers some stability and strategic contribution to ADI’s diversified portfolio. “Analog Devices gets decent revenue from defense,” said Jordan Klein in a recent CNBC interview.
Overall financial health is among other reasons to own Analog Devices stock. In May, the Nasdaq listed firm reported a 22% year-on-year increase in its revenue to a better-than-expected $2.64 billion.
Plus, ADI’s next quarter guidance at the time came in surprisingly good as well.
Its industrial and automotive segments are rebounding – and its defense-related business could benefit from higher demand for signal processing, power management, and RF components used in radar and avionics.
Analog’s robust free cash flow of $3.2 billion over the trailing twelve months and a 21-year streak of dividend increases further bolster its appeal to long-term investors.
With NATO’s push for modernization and the US proposing higher levels of defense procurement, Analog Devices shares could extend gains on continued demand for its analog and mixed-signal technologies in mission-critical applications.
MACOM Technology Solutions Holdings Inc (NASDAQ: MTSI)
Jordan Klein sees MACOM as another aggressive play on expected increase in defense spending.
Known for its high-performance RF, microwave, and optical semiconductors, MACOM’s “defense business is growing very rapidly,” he told CNBC, highlighting the company’s momentum in that space.
In Q2, the Nasdaq listed firm generated $236 million in revenue – up 30% on a year-over-basis – with strong contributions from its industrial and defense segment.
In the earnings release, MACOM cited “record levels in defense revenue” and emphasized the strategic importance of this vertical going forward.
MACOM has expertise in gallium arsenide (GaAs) and gallium nitride (GaN) technologies, which are increasingly vital in next-gen radar, satellite communications, and electronic warfare systems.
While MACOM stock does not currently pay a dividend, investors should note that Street currently rates it at “overweight” with price targets going as high as $160, hinting at potential upside of some 15% from here.
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