The U.S. defense sector is bracing for turbulence in 2025 as Goldman Sachs downgraded a key player in the industry and reiterated a bearish outlook on other defense stocks, citing risks tied to a slowing Pentagon budget and margin pressures.

The defense budget, which has more than doubled over the past decade, could see deceleration — or even contraction — under the watch of Donald Trump‘s newly formed Department of Government Efficiency led by Elon Musk and Vivek Ramaswamy.

“We remain cautious on defense stocks as we see decelerating and potentially negative growth in the forward U.S. Department of Defense budget,” Goldman Sachs analyst Noah Poponak said in a note Thursday.

Goldman downgraded General Dynamics Corp. (NYSE:GD) from Neutral to Sell, citing fundamental challenges across all four of its business segments.

Can The Defense Budget Escape DOGE Spending Cuts?

Goldman warned that defense spending may have peaked, creating “tough compares” for future growth.

Historically, defense spending has moved in decade-long cycles, and the current high base of investment means the next phase could be one of contraction.

Poponak also highlighted the incoming Trump administration appears eager to wind down U.S. involvement in foreign conflicts, further reducing the case for large-scale defense spending.

Poponak indicated the Pentagon’s procurement efficiency as “imperfect,” which could make defense spending an attractive target for cuts. Given that defense represents a significant chunk of the federal budget, trimming it …

Full story available on Benzinga.com