With rising global geopolitical tensions fueled by increasing defense spending and expanding wars, orders for weapons are surging, leading major defense companies to expect record profits.

According to an analysis by Vertical Research Partners, the world's top 15 defense companies are projected to generate $52 billion in free cash flow by 2026, a figure that is double the amount at the end of 2021, reported the Financial Times (FT).

The top five U.S. defense companies alone are expected to generate $26 billion in cash by the end of 2026, more than double the amount in 2021.

This figure excludes Boeing, whose recent series of mishaps and significant involvement in commercial aviation have negatively impacted its performance.

In Europe, major defense companies such as the UK’s BAE Systems, Germany’s Rheinmetall, and Sweden’s Saab are also expected to see more than a 40% increase in cash flow, driven by orders for missiles and ammunition.

This trend is being accelerated by the Russian-Ukrainian war, the conflict in the Middle East, and rising tensions in Asia, leading governments to increase their defense budgets.

In the U.S., a recent support bill for Ukraine, Taiwan, and Israel allocated $13 billion in defense funding to the top five defense companies and their partners, including Lockheed Martin. Similarly, the UK Ministry of Defense has spent £7.6 billion (around $10.1 billion) on military aid to Ukraine over the past three years. With rising defense spending, weapon orders are approaching record highs globally.

Typically, it takes several years for new weapon contracts to translate into revenue, as defense companies record sales when the weapons are delivered. However, attention is already on how these companies will use the substantial cash they have begun accumulating.

Robert Stallard, an analyst at Vertical Research, noted, “Companies generally don't like to hold onto a lot of cash, and acquisitions aren't easy in the current environment, so how they choose to allocate this cash is a major point of interest. Stock buybacks or dividends seem likely." This trend has already begun. Defense companies have invested billions in stock buybacks even before the recent surge in orders.

According to data from Bank of America (BoA), U.S. and European defense companies saw their largest stock buyback volumes in five years last year.

Lockheed Martin and RTX repurchased nearly $19 billion worth of their own shares last year, while BAE Systems completed a £1.5 billion (about $2 billion) share buyback program over three years this past summer and has launched an additional £1.5 billion buyback program.