United States Defense Market Size & Share Analysis - Growth Trends and Forecast (2026 - 2031)

United States Defense Market Trends and Insights

Accelerated Replacement and Modernization of Legacy Cold War-Era Platforms

Aging air, sea, and ground fleets averaging three to four decades in service drive escalating sustainment costs that crowd out new procurement. The KC-135 tanker and DDG-51 destroyer classes illustrate how deferred recapitalization strains readiness and budgets. Northrop Grumman’s USD 1.381 billion February 2025 awards to expand the Integrated Battle Command System (IBCS) software underscore how allied interoperability accelerates US modernization timelines. Sustained demand for recapitalization underpins steady procurement volumes, even as unit costs rise and production rates lag behind retirement schedules.

Great-Power Competition Re-Prioritizing Multi-Domain Dominance

China’s anti-access/area-denial posture across the First Island Chain has rendered short-range legacy platforms increasingly vulnerable, compelling the Department of Defense (DoD) to field penetrating counter-air and stand-in forces. Secretary of Defense Frank Kendall’s 2024 warning that China constitutes a “present threat” underscores the urgency for systems capable of surviving contested electromagnetic environments.^{[1]Erin B. Logan, “Report to Congress on Air Force NGAD Fighter,” USNI.ORG} The Air Force’s F-47 Next Generation Air Dominance (NGAD) fighter, awarded to Boeing in March 2025, exemplifies this pivot with a greater than 1,000-nautical-mile combat radius and enhanced stealth.

Rapid Fielding Pathways Under FY24 National Defense Authorization Act

The FY24 NDAA authorizes up to USD 100 million annually per Service for emergent-technology activities that can be operational within 24 months, allowing commanders to bypass traditional milestone gates. Special Operations Command has already awarded counter-UAS and AI-enabled ISR contracts within 15 days of need statements, demonstrating venture-speed procurement unseen in legacy programs.^{[2]GovRegs Editors, “Procedures for Urgent Acquisition,” GOVREGS.COM} However, uneven adoption across the armed forces creates a bifurcated acquisition landscape where niche capabilities accelerate while major platforms remain tethered to multi-year cycles.

Digital-Engineering Mandates Compressing Design-to-Deployment Cycle

Digital twins and model-based systems engineering are shrinking design timelines by up to 40%. The NGAD demonstrator reportedly flew within one year of digital design freeze, validating virtual-prototype methodologies. Parallel adaptive-cycle engine developments from GE and Pratt & Whitney illustrate how digital engineering preserves industrial base competition while accelerating maturation; however, translating virtual models to production exposes data standard and cybersecurity gaps.

Continuing-Resolution Budget Ceilings

Eight of the past ten fiscal years opened under continuing resolutions that freeze funding at prior-year levels and bar new-start programs. The FY2025 operating plan’s USD 557.10 million transfer from F-47 development to a distinct collaborative-combat-aircraft line illustrates how legislative uncertainty fragments funding and inflates unit costs.^{[3]U.S. Congress, “10 U.S.C. § 3601 Urgent Acquisition Procedures,” CONGRESS.GOV} Suppliers face cash-flow squeezes that erode surge capacity, perpetuating a cycle in which instability begets inefficiency and congressional skepticism.

MRO Labor Shortages in Naval and Air Depots

Public shipyards and air logistics complexes report vacancy rates exceeding 20% for welders, electricians, and avionics technicians. Maintenance availabilities for surface combatants and submarines now overrun schedules by 30-40%, reducing fleet readiness and forcing commanders to accept risk in deployment calendars. Apprenticeship pipelines require three to five years to produce journeyman-level mechanics, meaning shortages will constrain readiness throughout the medium term.

Segment Analysis

By Armed Forces: Air Force Growth Outpaces Army Share

The Army captured 30.55% of the United States defense market in 2025, reflecting its extensive ground-vehicle, aviation, and soldier-systems portfolios. The Air Force, however, is projected to expand at a 4.98% CAGR through 2031, the fastest among the armed forces, propelled by sixth-generation fighter development, adaptive-cycle propulsion, and integration of loyal-wingman variants. The Navy’s Columbia-class submarines and DDG-51 Flight III destroyers sustain maritime share, though shipyard labor shortages temper near-term deliveries.

The Air Force’s March 2025 NGAD contract to Boeing for more than 185 F-47 fighters anchors its expansion strategy, while the May 2025 designation of Anduril’s YFQ-44A collaborative combat aircraft underscores its commitment to human-machine teaming. By contrast, the Army’s modernization priorities, including the Next-Generation Combat Vehicle (NGCV) and Extended Range Cannon Artillery (ERCA), face budget trade-offs between new procurement and the sustainment of legacy fleets, which moderates growth.

Note: Segment shares of all individual segments available upon report purchase

By Type: C4ISR Leadership Meets Space-Cyber Surge

C4ISR and EW dominated the market, accounting for a 31.25% revenue share of the United States defense market in 2025, driven by investments in joint all-domain command and control (JADC2) and next-generation radar programs. Space and cyber systems, though smaller, are forecasted to grow at a 6.12% CAGR, reflecting demand for resilient missile-warning architectures and AI-enabled cyber defense. Weapons and ammunition benefit from stockpile-replenishment mandates linked to Ukraine drawdowns and contingency planning in the Indo-Pacific.

BAE Systems’ USD 1.20 billion MEO missile-warning award exemplifies momentum in the space segment. Cyber growth is led by US Cyber Command’s machine-speed threat-response initiatives. The shift from hardware-centric platforms to software-defined architectures enables over-the-air upgrades that compress lifecycle costs and enhance continuous modernization.

By Domain: Land Primacy Yields to Space Expansion

Land operations retained 40.45% of the 2025 spending in the United States defense market. Yet, space is the fastest-expanding domain, with a 6.98% CAGR through 2031, driven by the Space Force’s proliferated-constellation strategy. Air domain outlays remain robust due to the modernization of fighters, tankers, and bombers, although uncertainty over the NGAD timeline injects risk. Naval investments concentrate on Columbia-class submarines and carrier aviation, yet shipyard backlogs delay deliveries.

Space’s ascent is illustrated by BAE’s missile-warning constellation and the Space Development Agency’s Tranche 1 Transport Layer. Land’s slower growth results from Army program cancellations and the maturation of its modernization portfolio. The cyber-electromagnetic spectrum domain, although small, grows quickly as electronic-warfare and spectrum-management tools gain budget priority.

Note: Segment shares of all individual segments available upon report purchase

By Procurement Nature: Indigenous Production Sustains Leadership

Indigenous production accounted for 69.54% of 2025 spending and is projected to rise at a 5.29% CAGR. Defense Production Act authorities and onshoring mandates for critical minerals and semiconductors reinforce domestic sourcing. Anduril’s planned Ohio factory to mass-produce autonomous systems exemplifies venture-funded onshoring. Foreign procurement grows more slowly, constrained by ITAR restrictions and allied budget pressures.

The FY24 NDAA’s USD 200 million aggregate ceiling for urgent acquisitions favors domestic suppliers capable of fixed-price rapid prototyping. Congressional scrutiny of China-linked supply chains and rare-earth dependencies further tilts the market toward vertically integrated US producers, complicating entry for foreign vendors even from treaty allies.

Geography Analysis

Procurement spans all 50 states, yet theater priorities shape spending. Indo-Pacific allocations emphasize long-range fires, ISR, and mobility assets to counter China. The Air Force’s Bamboo Eagle-Resolute Force Pacific exercise in summer 2025 deployed 300 aircraft and 2,000 personnel across dispersed bases, demonstrating Agile Combat Employment concepts that boost demand for expeditionary support systems. European investments prioritize NATO interoperability, as highlighted by Northrop Grumman’s USD 347.60 million contract share for Poland’s air defense integration.

Domestic depot networks in Norfolk, Portsmouth, Pearl Harbor, Tinker AFB, Hill AFB, and Warner Robins experience skilled-trade vacancies exceeding 20%, which lengthen maintenance timelines. The Austin-based Army Futures Command anchors digital-engineering collaboration with commercial tech hubs, while Space Force operations are clustered in Colorado Springs, Los Angeles, and Huntsville. High-cost-of-living areas, such as Southern California and the Boston corridor, concentrate aerospace talent yet struggle with workforce retention, prompting subcontractor consolidation.