Analysis of the Impact of U.S. Arms Sales to Taiwan on Defense Contractors

I have now collected sufficient data, so let me conduct a systematic analysis for you.

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According to the latest information, the U.S. government approved multiple arms sales agreements to Taiwan between late 2025 and early 2026 [1]:

Arms Sales Item	Amount	Main Content	Contractor
Infrared Search and Track System Contract	$328.5 million	55 Legion Enhanced Sensor Pods and supporting facilities	Lockheed Martin
Large-Scale Arms Sales Program	Over $11 billion	420 tactical ballistic missiles, 82 HIMARS rocket launchers, anti-armor missiles	Multiple Contractors
Fighter Jet Components	$330 million	Spare parts supply for F-16 and other fighter jets	Raytheon Technologies, Northrop Grumman, etc.

:

• F-35 Program: Delivered 191 aircraft in 2025, a record high (only 110 in 2024) [4]
• Received a
  $3.63 billion
  modification to the Navy’s F-35 logistics support contract in December 2025 [5]
• Third-quarter order backlog exceeded
  $170 billion
  , reflecting long-term visibility [6]

:

• As a core supplier of the HIMARS system and missile defense systems, it has benefited from multiple arms sales agreements
• Stock price has risen by approximately
  61%
  since early 2025, with outstanding performance [7]

---

Company	Ticker	Current Stock Price	Daily Gain	52-Week Gain	P/E	Market Capitalization
Lockheed Martin	LMT	$572.70	+2.58%	+18.21%	31.85x	$134 billion
Raytheon Technologies	RTX	$198.84	+2.45%	+61.0%	40.83x	$266.2 billion
Northrop Grumman	NOC	$653.14	+4.42%	+52.8%	23.52x	$93.2 billion

The defense sector continued its strong performance in early 2026 [8]:

• L3Harris
  and
  Huntington Ingalls
  : Rose
  11%
  in the first 5 trading days of the year
• Northrop Grumman
  ,
  Lockheed Martin
  : Rose over
  4%
• AeroVironment
  (UAVs): Surged over
  40%

:

• Trend
  : In an uptrend (breakout pattern, to be confirmed)
• Key Technical Levels
  : Resistance at $578.02, next target at $594.28; Support at $525.48
• Beta
  : 0.24 (low correlation with the market, strong anti-drop capability)
• RSI
  : In the overbought zone, with risk of short-term correction

:

• Trend
  : In an uptrend (breakout signal, buy signal triggered on January 13)
• Key Technical Levels
  : Resistance at $198.87, next target at $203.27; Support at $189.75
• Beta
  : 0.44 (moderate correlation with the market)

---

The Chinese Ministry of Foreign Affairs announced countermeasures against

and :

:

• Northrop Grumman Systems Corporation
• Boeing St. Louis Branch
• L3Harris Maritime Services Company
• Multiple UAV and technology companies (Red Cat Holdings, Teal Drones, etc.)

:

• Freeze all movable property, real estate, and other types of assets in China
• Prohibit organizations and individuals in China from conducting transactions or cooperation with them
• Executives have their assets frozen and are prohibited from entering Chinese territory (including Hong Kong and Macau)

[2]:

• Each F-35 requires
  400 kg
  of rare earth materials
• China has absolute dominance in rare earth deep processing and precision ceramics
• China’s rare earth exports to the U.S. decreased by
  11%
  month-on-month
• Reconstructing a complete rare earth supply chain independent of China will take
  at least 8 years

[2]:

• Raytheon Technologies has operated in China for 80 years, with aircraft engine and elevator businesses in 11 cities
• Lockheed Martin once coveted market shares in the nuclear power and aviation sectors
• The U.S. Industry Federation estimates that the sanctions may cause
  $29 billion to $56.2 billion
  in losses

---

According to an MUFG research report, defense stocks have significantly outperformed the broader market amid geopolitical tensions [11]:

Time Period	Defense ETF Performance	S&P 500 Performance	Excess Return
2025 to date	+24% to +27%	+4%	+20% to +23%

:

• Strong Anti-Drop Capability
  : LMT’s Beta is only 0.24, RTX’s Beta is only 0.44 [0]
• Counter-Cyclical
  : Attracts capital inflows during periods of rising geopolitical risks
• Policy-Driven
  : High certainty in defense budget growth

[6][12]:

• European defense stocks have been re-rated, with obvious valuation premiums
• U.S. peers are relatively undervalued:
  Lockheed Martin P/E 31.85x
  ,
  RTX P/E 40.83x
  ,
  General Dynamics Forward P/E 23.0x
• U.S. military-industrial stocks may have catch-up growth opportunities

Scenario	Intrinsic Value	vs. Current Stock Price
Conservative Scenario	$732.90	+28.0%
Base Scenario	$1,194.31	+108.5%
Optimistic Scenario	$3,106.14	+442.4%
Probability-Weighted	$1,677.78	+193.0%

:

• WACC: 5.9% (risk-free rate +4.5%, market risk premium +7.0%)
• Terminal growth rate assumption: 2.0%-3.0%
• Cost sensitivity: A 1% increase in costs may reduce valuation by approximately 8-10%

---

✅

: Record-high order backlogs, high revenue certainty
✅ : 2026 fiscal year National Defense Authorization Act approved with $901 billion in funding
✅ : Capital flows into the defense sector during periods of tense cross-Strait relations
✅ : Growing demand from international customers (Poland, Japan, Finland)

⚠️

: Risk of asset freezes in China and partial supply chain disruptions
⚠️ : China may further restrict rare earth exports
⚠️ : RSI of some defense stocks is in the overbought zone
⚠️ : White House remarks on restricting stock buybacks

Company	Consensus Rating	Target Price	vs. Current Price
LMT	Buy (54%)	$543.00	-5.2%
RTX	Neutral-Buy	$200.00	+0.6%
NOC	Buy	-	-

---

The impact of U.S. arms sales to Taiwan on defense contractors is

:

1. Significant Short-Term Order Growth
   : The $11 billion arms sales agreement directly increases order backlogs and drives revenue growth
2. Strong Stock Performance
   : The defense sector has significantly outperformed the broader market year-to-date, with LMT, RTX, and NOC hitting all-time highs
3. Geopolitical Risk Premium Emerges
   : The implicit geopolitical risk premium in the valuation system has driven excess returns for defense stocks
4. Limited Risk from China’s Countermeasures
   : Although the sanction measures are severe, the Chinese business shares of major defense contractors are small, so the impact is controllable
5. Supply Chain Resilience is Key
   : Dependence on rare earths is a long-term potential risk, but it is difficult to replace in the short term

: Against the backdrop of rising geopolitical uncertainty, the defense sector has good risk hedging properties and growth certainty, but attention should be paid to the risk of short-term valuation corrections, and focus on order backlog release and defense budget execution progress.

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[1] Voice of America - “Pentagon Awards Lockheed Martin a Contract Worth Nearly $330 Million for Arms Sales to Taiwan” (https://www.voachinese.com/a/pentagon-awarded-lockheed-martin-a-contract-worth-nearly-330-million-for-arms-sales-to-taiwan-20260101/8098024.html)

[2] European Machine Tool Network - “Lockheed Martin’s Production Line Suddenly Stopped” (https://ouzhoujc.com/news-detail/288/288568.html)

[3] First Logistics Network - “Behind Trump’s Largest Arms Sales to Taiwan: U.S. Military-Industrial Supply Chain” (http://www.cn156.com/cms/qianyanguancha/119723.html)

[4] Breaking Defense - “Lockheed boasts record 191 F-35 deliveries in 2025” (https://breakingdefense.com/2026/01/lockheed-boasts-record-191-f-35-deliveries-in-2025/)

[5] GovCon Wire - “Lockheed Books $3.6B Navy F-35 Logistics Contract” (https://www.govconwire.com/articles/lockheed-navy-f-35-logistics-contract-modification)

[6] Gainify - “Top 7 Defense Stocks to Consider in 2026” (https://www.gainify.io/blog/defense-stocks)

[7] Chronicle Journal - “RTX Deep Dive: Navigating the $1.5 Trillion Defense Frontier” (http://markets.chroniclejournal.com/chroniclejournal/article/predictstreet-2026-1-8-rtx-deep-dive-navigating-the-15-trillion-defense-frontier-and-the-buyback-ultimatum)

[8] Yahoo Finance - “Defense Stock Rally Extends as Geopolitics Stays Tense” (https://finance.yahoo.com/news/defense-stocks-soar-again-trump-122326044.html)

[9] Chinese Ministry of Foreign Affairs - “Decision on Taking Countermeasures Against U.S. Military-Industrial Related Enterprises and Senior Executives” (https://www.mfa.gov.cn/wjbxw_new/202512/t20251226_11787617.shtml)

[10] Chinese Embassy in the U.S. - “Decision on Taking Countermeasures Against U.S. Military-Industrial Related Enterprises and Senior Executives” (https://us.china-embassy.gov.cn/zmgx_1/zxxx/202601/t20250103_11797061.htm)

[11] MUFG Americas - “Geopolitical Risk Premium” (https://www.mufgamericas.com/sites/default/files/document/2025-06/Geopolitical_Risk_Premium_Final.pdf)

[12] AInvest - “China’s Sanctions on U.S. Defense Firms and Implications for Boeing” (https://www.ainvest.com/news/china-sanctions-defense-firms-implications-boeing-ba-geopolitical-risk-assessment-stock-valuation-analysis-2512/)