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This Defense Stock Has a $57B Backlog and New AI Tailwinds
Written by Gabriel Osorio-Mazilli. Published 10/24/2025.
Key Points
- Huntington Ingalls' stock now trades near a 52-week high, although its market capitalization is significantly below the sector average.
- Government defense spending has led to an increase in the company's backlog, boosting EPS forecasts.
- AI implementation could raise margins to new highs, justifying the continuation of its bullish price action.
In the world of defense investing, some of the best opportunities come not from discovering new names, but from re-evaluating essential companies that Wall Street may be underpricing relative to their strategic value.
One such case is Huntington Ingalls Industries (NYSE: HII), a major player in the U.S. defense sector with a market cap of $11.5 billion.
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With geopolitical tensions heating up between the United States, China, and the Middle East, Huntington Ingalls stands to benefit from expanding government defense budgets.
Huntington Ingalls' record backlogs, artificial intelligence (AI) adoption, and strong defense spending are creating a rare setup for long-term earnings growth and valuation expansion, despite the stock currently trading near its highs.
Huntington Ingalls Is at the Center of Naval Power
The United States Navy is one of the most extensive and well-equipped in the world.
The 2025 defense budget stands just under $850 billion, with roughly $40 billion allocated to aircraft carriers and other major shipbuilding programs for the services. These allocations translate to direct revenue opportunities for the contractors that supply critical military infrastructure, like Huntington Ingalls.
Despite being the largest military shipbuilder in the United States and a major supplier of aircraft carriers, destroyers, and submarines for the Navy, the company trades at a modest valuation relative to its strategic importance.
In its most recent quarter, Huntington Ingalls secured $11.9 billion in new contract awards, boosting its backlog to a record $56.9 billion. Backlog levels haven't been this high since the COVID-19 pandemic, providing a long runway of predictable revenue.
But there's a new factor that could significantly accelerate value realization: AI integration.
How Artificial Intelligence Is Changing the Game
According to management, Huntington Ingalls' AI implementation is set "to accelerate shipbuilding throughout," which translates to faster production cycles, lower costs, and expanded margins.
It could also shift long-lead government contracts into more immediate earnings drivers. This transformation is a key reason why HII stock is up 48.1% year-to-date and is now trading at 95% of its 52-week high, despite the long timelines typically associated with defense contracts.
Analysts May Still Be Behind the Curve
It's understandable that some investors hesitate to buy a stock near its 52-week high, especially when analysts haven't been raising ratings or targets.
The MarketBeat consensus Q4 earnings per share (EPS) forecast for HII is $4.24, about 10% higher than the Q2 reported EPS of $3.86. Investors will also be watching whether the company hits—or beats—the Q3 analyst consensus forecast of $3.40 when the report is released on Oct. 30. Notably, Q2 EPS exceeded the prior consensus of $3.23 by a wide margin.
This pattern of analysts underestimating results suggests they may still be too conservative, particularly if AI-driven efficiency continues to compress production timelines and boost margins. If these trends persist, Huntington Ingalls could see upside EPS revisions in future quarters—a key catalyst for further stock gains.
Institutional investors appear to be positioning accordingly. In August 2025, Bank of America boosted its stake in Huntington Ingalls by 4%, bringing its total position to $160.9 million, equal to roughly 1.7% ownership. That move indicates conviction in HII's long-term trajectory, given its strategic role and improving financial outlook.
Huntington Ingalls: A Strategic Play on Defense and AI
Huntington Ingalls is uniquely positioned at the intersection of national defense urgency and technological transformation. A $56.9 billion backlog, a proven track record as the Navy's shipbuilder of choice, and AI-powered efficiency gains combine to present a rare mix of stability, growth, and upside surprise potential.
For investors who can look beyond short-term noise and headlines, HII remains a compelling opportunity even at current share prices.
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