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For Your Education and Enjoyment This Defense Stock Has a $57B Backlog and New AI TailwindsWritten 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. 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 dedicated to aircraft carriers and related naval shipbuilding. These allocations translate to direct revenue opportunities for contractors that supply critical military infrastructure, like Huntington Ingalls. Despite being the largest military shipbuilder in the United States and a primary 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. These backlog levels have not been seen since the COVID-19 pandemic and provide 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. AI 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 are not yet boosting ratings or price targets. The Q3 report is expected on Oct. 30, when investors will learn whether the company hits—or beats—the Q3 analyst consensus forecast of $3.40. Separately, 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. Notably, the company's Q2 EPS beat the previous consensus estimate of $3.23 by a wide margin. This pattern of underestimation suggests that analysts may still be too conservative, particularly if AI gains continue to compress production timelines and improve 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 taking notice. In August 2025, Bank of America boosted its stake in Huntington Ingalls by 4%, bringing its total position to $160.9 million, equal to 1.7% ownership. That move suggests conviction in HII's long-term trajectory, given a business model that combines national importance with expanding financial returns. 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 mark the company as a rare combination of stability, growth, and upside surprise potential. Because of all this, HII stock remains a compelling opportunity for investors who can look beyond short-term volatility and focus on long-term fundamentals.
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