Hard Assets Rule: Energy, Defense, and Chips Cash In on Hormuz

Dear readers,

Yesterday we flagged three separate stress tests colliding in one week — oil, the Fed, and crypto’s liquidity drought. The oil story hasn’t cooled off; it has spread. What started as a spike in crude prices is now reshaping how Wall Street values entire sectors heading into earnings season. The trade emerging from the Strait of Hormuz isn’t just “buy energy, sell airlines” anymore. It’s a broader rotation into anything investors can touch, defend, or ship — physical infrastructure, weapons systems, and secured chip supply chains — while abstract growth stories take a back seat.

Energy Becomes the Reporting Season’s Only Engine

The military escalation hasn’t let up. U.S. forces have now struck roughly 90 Iranian targets, and Tehran answered with attacks on American bases in Kuwait, Qatar, and Bahrain. Traffic through the Strait of Hormuz — a chokepoint that normally carries a fifth of the world’s oil — has thinned dramatically, with tanker counts dropping to as few as seven at a time. Brent crude, which jumped above $78 a barrel earlier this week, briefly tested $80 before easing back toward $78.

That price action is about to show up directly in corporate earnings. According to LSEG I/B/E/S data, analysts expect STOXX 600 profits to rise 14.5% in the second quarter — but the number is doing a lot of hiding. Strip out energy, where earnings are forecast to jump 109.3%, and the growth rate for the rest of the index collapses to 5.5%. In other words, one sector is carrying an entire earnings season. For investors, that’s the clearest evidence yet that physical commodities remain the most reliable hedge against a geopolitical shock — better than any hedge built on multiples and narratives.

Defense Contractors Trade Prototypes for Production Lines

War tends to reward whoever can build the most, fastest — and that shift is already visible in defense contracting. Lockheed Martin has unveiled its Next Generation Glide Body, a hypersonic glide vehicle engineered not just for range and speed but for affordable, large-scale manufacturing, with a flight demonstration slated for 2027.

The more immediate money, though, is in scaling up systems that already work. Lockheed and the Pentagon plan to more than triple annual production of the PAC-3 MSE interceptor, from 600 units to 2,000. That buildout is reinforced by President Trump’s pledge at the NATO summit to license Ukraine to produce its own Patriot air defense systems. Put together, these moves tell investors something simple: defense budgets are shifting from experimental spending toward durable, high-volume manufacturing contracts — the kind that lock in cash flow for established primes for years, not quarters.

Drones and Radar Draw the Fastest Capital

If missiles are the headline, drones are becoming the quieter procurement priority. The Trump administration’s spending plan for next year sets aside more than $70 billion for military drones and counter-drone weapons — described by officials as the largest U.S. investment in counter-UAS capability on record. Capital is already chasing the theme: this month alone, Cathie Wood’s Ark ETFs have bought roughly $9.1 million in shares of Kratos Defense & Security Solutions.

Should investors sell immediately? Or is it worth buying GlobalWafers?

The bet has fundamentals behind it. Kratos posted first-quarter revenue of $371 million, beating the Zacks consensus of $344 million by 7.7% and marking 22.6% growth from $302.6 million a year earlier. Adjusted earnings came in at 16 cents per share, up a third from 12 cents, while GAAP earnings more than doubled to 7 cents from 3 cents. Management raised full-year 2026 revenue guidance to a range of $1.7 billion to $1.76 billion.

The supply chain beneath the primes is scaling just as fast. Echodyne, a U.S. radar maker, is opening a new manufacturing and warehouse facility in Washington State built to ship more than 30,000 radar units a year, chasing surging demand for counter-drone systems. NATO, meanwhile, is expanding its own maritime surveillance fleet with its first purchase of Northrop Grumman’s MQ-4C Triton, after Norway, Finland, Germany, and Denmark signed a letter of intent to jointly acquire up to five of the aircraft. Between Kratos, Echodyne, and Triton, the pattern is the same: a geopolitical crisis translating almost immediately into multibillion-dollar order books.

Chips Get Reclassified as Infrastructure

The hard-asset rotation has reached semiconductors too, and Thursday brought the clearest signal yet. Micron Technology said it plans to invest more than $250 billion in the U.S. through 2035, betting on surging demand for memory chips tied to AI. Of that, $3 billion is earmarked for strengthening the domestic semiconductor supply chain, including $500 million to fund GlobalWafers’ 300-mm raw-silicon-wafer facility in Sherman, Texas. Micron shares jumped more than 6% in premarket trading on the news.

This is a meaningful reframing. Chipmakers are no longer being priced purely as AI-growth stories; they’re being priced as national infrastructure, with the same strategic weight investors are now assigning to energy pipelines and munitions plants.

The Takeaway

Reporting season opens next week with JPMorgan Chase and Wells Fargo, and the question they’ll answer is whether this hard-asset rotation is a temporary hedge against a Middle East flashpoint or the start of a longer repricing of what counts as a safe holding. Until traffic through Hormuz normalizes, expect the premium on physical assets — barrels, interceptors, radar units, and wafers — to stay elevated. The AI trade isn’t dead, but for now, it’s sharing the stage with companies that make things you can actually put your hands on.

Best regards,
The StocksToday.com Editorial