U.S. tech titans are beating the defense sector amid an escalating geopolitical situation—a rare phenomenon in the markets.
Since the Iran conflict began on Feb. 28, the iShares U.S. Aerospace & Defense ETF (BATS:ITA), the fund used as a proxy for tracking the defense sector, has lost about 8.7%. Meanwhile, shares of Nvidia Corp (NASDAQ:NVDA) have lost just 1.3%, and those of Apple Inc (NASDAQ:AAPL) have slipped about 4.3%.
This phenomenon represents a significant deviation from the past, when the defense sector tended to rally amid heightened global tensions. The basic rationale was that tensions would boost military spending.
Flipping The Traditional Playbook
Technology stocks were thought to be the sector most vulnerable amid escalating tensions. Rising inflation and interest-rate uncertainty, often triggered by conflict-driven energy shocks, tend to pressure high-growth sectors. Yet, this time, Big Tech has proven more resilient than expected.
U.S. tech stocks have re-emerged as a safe haven in the face of the recent volatility in the markets. According to a recent note by Principal Asset Management, “As conflict-driven energy shocks unsettled markets in March— hitting cyclicals and international equities particularly hard, especially in Europe and Asia—U.S. technology stocks reasserted themselves as a perceived safe haven.”
The Rise Of ‘Modern Defensives'
Principal Asset Management noted that the shift appears to reflect an increased focus by investors on earnings visibility and structural growth drivers, as opposed to more traditional geopolitical hedges. Strength in industries such as semiconductors, software, and AI-related businesses is helping insulate large-cap tech names from macro-related pressures.
Defense Stocks May Already Have Priced In Geopolitics
The performance of defense-related stocks is also an interesting factor to consider, as it appears to reflect investors' expectations of geopolitical tensions. The sector has likely priced in geopolitical risks, which could limit near-term upside potential.
According to a Reuters report, which cited David Bianco, Americas chief investment officer at German asset manager DWS, much of the conflict premium was in the valuations of defense stocks. “A lot of conflict premium was in their valuations….We saw gold and oil and defense rally, part of the reason was messages from the administration, when Trump was sending the armada to the Middle East. Nobody knew anything, but they saw chances of a conflict,” noted Bianco.
Budget cycles and the lag between conflict escalation and actual spending flows could also be weighing on the sector.
ETFs Reflect The Rotation
Tech-heavy ETFs such as the Invesco QQQ Trust (NASDAQ:QQQ) and the Technology Select Sector SPDR Fund (NYSE:XLK) have held up better compared to defense-related funds, signaling a broader rotation toward growth-oriented exposures.
However, the tech outperformance is unlikely to endure if interest rates rise or if the U.S.-Israel-Iran war escalates further.
For now, however, in an era defined by AI-driven growth and strong balance sheets, Big Tech is increasingly being treated not just as a growth play, but as a source of resilience, even in times of war.
Image via NINA IMAGES/Shutterstock
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