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3 Industrial Giants Positioned for Defense-Led Growth
Written by Chris Markoch. Published 8/26/2025.
Key Points
- Growing digital automation and energy solutions give Baker Hughes potential upside beyond traditional oilfield services.
- Rising defense demand and strong commercial engine sales make GE Aerospace a top play in U.S. aerospace infrastructure.
- Caterpillar’s Energy and Transportation unit and steady dividend growth make it a reliable long-term infrastructure stock.
When investors consider infrastructure stocks, many immediately think of artificial intelligence (AI)—and with good reason. Leading technology firms are investing heavily in AI, driving growth across semiconductors and other critical infrastructure for data centers.
However, infrastructure investment extends beyond data centers. It also encompasses sectors that will require significant capital expenditures for the rest of the decade.
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One segment to watch is industrial stocks. They have been among the strongest performers in 2025 and still offer upside. Other areas—such as energy and aerospace/defense—align with current priorities for onshore American manufacturing.
Digital Infrastructure Meets Defense Potential
Baker Hughes Co. (NASDAQ: BKR) has climbed more than 26% over the past 12 months, supported by strong demand for its core energy and oilfield services as integrated oil companies maintain high production levels.
More notably, Baker Hughes is positioning itself in digital automation and drone warfare. The Pentagon's proposed $900 billion budget emphasizes unmanned systems, energy resilience, and digital warfare capabilities.
Although Baker Hughes does not yet hold major defense contracts, its expertise in automation and energy resilience could make it a preferred partner as the military shifts toward unmanned systems. Supporting that view, orders for its digitally enabled solutions and automation platforms continue to grow.
Trading at about 14.6 times forward earnings, BKR shares carry a slight premium to the broader energy sector. If its digital infrastructure business gains traction, that premium may prove justified.
Premium Valuation With Strong Growth Drivers
GE Aerospace (NYSE: GE) offers pure-play exposure to aerospace through two segments: Commercial Engines & Services, and Defense & Propulsion Technologies. Both units are benefiting from rising demand across public and private markets.
At approximately 37 times earnings, GE trades at a premium to its sector. Its share price sits around 13% above consensus targets, raising questions about valuation. Yet if defense spending remains robust and analysts continue to lift their forecasts, that premium could be warranted.
Indeed, since its mid-July earnings report, several firms—including UBS—have raised their price targets. UBS increased its target from $300 to $321, implying roughly 19% upside from late-August levels.
A Best-in-Class Industrial for the Long Haul
Caterpillar Inc. (NYSE: CAT) has gained 19.2% so far in 2025. While this lags its stellar five- and ten-year returns, CAT remains a must-own name in industrial portfolios.
Tariff-related expenses have weighed on its Construction Industries and Resource Industries divisions for the past two quarters and will likely persist through year-end. However, Caterpillar's Energy & Transportation unit—providing engines, turbines and locomotives for power generation—continues to expand, supporting the digital economy.
Caterpillar is a Dividend Aristocrat, having raised its dividend for 30 consecutive years. With a payout ratio near 30%, its annual dividend of $6.04 per share appears well supported.
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