America Just Lit the Fuse on a Defense-and-Grid Supercycle — 5 Stocks the Market Still Doesn’t Fully Get

Outlier Capital · Outlier Capital · April 23, 2026 at 09:39 · ⏱ 8 min read  | Read on Substack ↗
Summary
The U.S. is entering a multi-year defense-and-grid capex supercycle driven by the FY2027 Pentagon budget ($1.45T) and a Defense Production Act determination targeting grid infrastructure. The market underappreciates the convergence of defense modernization and electrical backbone investment. A focused basket of 5 mid-cap stocks (AMSC, KTOS, POWL, AVAV, HPS) that sit on key bottlenecks offers asymmetric upside.
  • •Pentagon FY2027 budget request is ~$1.45T (reported as $1.5T) with emphasis on drones, autonomy, munitions, shipbuilding, Golden Dome missile defense, and industrial base rebuilding.
  • •White House issued a Section 303 Defense Production Act determination on April 20, 2026, declaring critical grid infrastructure (transformers, conductors, substations, etc.) essential to national defense.
  • •The author argues modern military capability is inseparable from power infrastructure: AI data centers, military bases, and missile defense all depend on a resilient electrical backbone.
  • •American Superconductor (AMSC, $2.2B cap) is the 'purest way to play the overlap' between grid modernization and national-security industrial policy.
  • •Kratos (KTOS, $12.7B cap) has the XQ-58 Valkyrie drone in production and was selected by the Marine Corps for the first Collaborative Combat Aircraft program of record.
  • •Hammond Power Solutions (HPS.A, $2.3B cap) reported record sales and a backlog 122% higher YoY, driven by data center and infrastructure demand for dry-type transformers.
Read time 8 min
Length 8,388 chars
Category finance
Ideas
Outlier Capital Substack author, Outlier Capital
Kratos' XQ-58 Valkyrie is in production and selected by the Marine Corps for CCA program, directly capturing the Pentagon's emphasis on attritable drones and autonomous systems.
KTOS HIGH
Outlier Capital Substack author, Outlier Capital
AeroVironment's Switchblade and counter-UAS platforms align with the Pentagon's FY2027 budget emphasis on munitions and drone warfare, with a recent $186M U.S. Army delivery order.
AVAV HIGH
Outlier Capital Substack author, Outlier Capital
Same logic as LMT: RTX is named as an obvious prime that will get its share of defense spending, with exposure to missile defense and munitions categories highlighted in the budget.
Same logic as LMT: RTX is named as an obvious prime that will get its share of defense spending, with exposure to missile defense and munitions categories highlighted in the budget. Risk: Execution risk on large programs; valuation may already reflect expectations.
RTX
Outlier Capital Substack author, Outlier Capital
Hammond Power Solutions is a major North American transformer manufacturer with record backlog and strong demand from data centers and grid infrastructure, directly benefiting from the defense-and-gri
Hammond Power Solutions is a major North American transformer manufacturer with record backlog and strong demand from data centers and grid infrastructure, directly benefiting from the defense-and-grid capex cycle.
HPS.A HIGH
Outlier Capital Substack author, Outlier Capital
American Superconductor sits at the intersection of grid modernization (advanced conductors, power electronics) and defense (naval ship protection), with the DPA memo explicitly targeting its product
American Superconductor sits at the intersection of grid modernization (advanced conductors, power electronics) and defense (naval ship protection), with the DPA memo explicitly targeting its product categories.
AMSC HIGH
Outlier Capital Substack author, Outlier Capital
Powell Industries builds switchgear and substations directly aligned with DPA-listed hardware, already has a $1.6B backlog, and benefits from utility, LNG, and data center demand.
POWL HIGH
Outlier Capital Substack author, Outlier Capital
The article notes 'Lockheed, RTX, Northrop and the rest will likely get their share of spending' from the $1.45T defense budget, implying these primes are indirect beneficiaries even though the author
The article notes 'Lockheed, RTX, Northrop and the rest will likely get their share of spending' from the $1.45T defense budget, implying these primes are indirect beneficiaries even though the author favors smaller caps. Risk: Defense budget politics could delay or reduce allocations; primes may face lower growth rates than the smaller bottleneck companies.
LMT
Outlier Capital Substack author, Outlier Capital
Northrop Grumman is named alongside Lockheed and RTX as a prime contractor that will benefit from the defense spending surge, particularly with Kratos' CCA contract involving Northrop.
Northrop Grumman is named alongside Lockheed and RTX as a prime contractor that will benefit from the defense spending surge, particularly with Kratos' CCA contract involving Northrop. Risk: Potential integration challenges on new programs; government contract renegotiations.
NOC
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This newsletter, published April 23, 2026, features Outlier Capital discussing KTOS, AVAV, RTX, HPS.A, AMSC, POWL, LMT, NOC. 8 trade ideas extracted by AI with direction and confidence scoring.

Speakers: Outlier Capital  · Tickers: KTOS, AVAV, RTX, HPS.A, AMSC, POWL, LMT, NOC