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Geopolitical tensions, marked by Russia's invasion of Ukraine and conflicts in Israel and Sudan, have led to increased defense spending. The MSCI World Aerospace and Defense Index reported a 52.47% return in 2025, driven by significant financial commitments from major economies.

The US plans to raise its defense budget from $901 billion in 2026 to $1.5 trillion in 2027. Europe is expected to allocate around €600 billion for defense in 2026, while Canada aims to triple its defense spending to over C$1.2 trillion in the next decade.

NATO has voted to increase defense spending among member states to 5% of GDP by 2035. Small-cap defense stocks, like Firan Technology (C$352.43 million market cap) and Magellan Aerospace (C$1.32 billion market cap), are positioned for growth due to their operational history and market awareness. Kraken Robotics anticipates continued revenue growth, with expected sales between C$120-135 million in 2025, supported by recent contracts.