RTX Corporation (NYSE: RTX) is benefiting from surging demand for missiles, air-defense systems, and other military equipment as geopolitical tensions rise and governments expand defense spending. The trend extends beyond the United States: at their June 2025 summit in The Hague, NATO members committed to spending 5% of GDP on defense by 2035, including core defense needs and broader security investments, signaling a durable, allied-wide backdrop for weapons procurement. The stock has gained roughly 9% year-to-date, with investors increasingly pricing in the company's growing defense backlog and stronger long-term demand.

Soaring Defense Backlog

On September 1, the U.S. Department of War awarded RTX Corporation's (NYSE:RTX) Raytheon business a $42.48 million cost-plus-fixed-fee contract for technical and engineering services supporting Navy air-traffic systems. The work covers engineering and restoration services for air-traffic navigation and coordination systems. While modest in size compared with Raytheon's larger weapons contracts, the award comes amid a broader acceleration in defense spending.

On August 17, Raytheon received a $22.9 billion contract to accelerate production of Tomahawk cruise missiles. The agreement supports an annual production ramp-up of more than 1,000 Tomahawk missiles, along with associated support and services. The Tomahawk program has been a centerpiece of U.S. naval strike capability for decades, and expanded production reflects both U.S. inventory replenishment and continued foreign military sales to allied navies.

Raytheon has also secured a $745 million contract from the Missile Defense Agency to produce SM-3 IIA missile interceptors, and the U.S. Navy awarded the company a $1.1 billion contract for AIM-9X Block II missiles. The SM-3 and other Raytheon-built interceptors are integral to the missile-defense architectures the U.S. and partners such as Japan have prioritized as regional missile threats draw greater attention.

Together, these awards illustrate the breadth of demand across Raytheon's missile and air-defense portfolio, and the contracts are feeding an already substantial backlog. RTX exited the second quarter with approximately $119 billion in defense backlog. Raytheon booked $19.9 billion in awards during the quarter, producing a book-to-bill ratio of roughly 2.4. A book-to-bill ratio above 1 generally indicates that new orders are arriving faster than revenue is being recognized, providing greater visibility into future sales.

Production Expansion Plans

The company's decision to increase production suggests management expects elevated demand for missiles and air-defense systems to persist rather than represent a temporary spike. That could provide RTX with a multiyear growth opportunity as the U.S. and allied governments replenish weapons inventories and invest in new defense capabilities. European nations in particular have accelerated rearmament programs since Russia's full-scale invasion of Ukraine in 2022, and munitions and air-defense systems—areas where Raytheon is a leading supplier—have been among the most sought-after categories.

Key Risk: Converting Backlog Into Profits

A central question for RTX is not simply how large its backlog becomes, but how quickly that backlog converts into revenue and at what margins. RTX's total backlog reached roughly $289 billion in the second quarter. While that provides significant long-term revenue visibility, converting those orders into profitable sales could prove challenging.

Production constraints, skilled labor shortages, and supply chain disruptions could limit Raytheon's ability to raise output quickly enough to meet customer demand. Solid-rocket-motor capacity and other specialized components have been recognized industry-wide as bottlenecks as missile makers scale output.

There is also a cost risk. Raytheon relies on a global network of suppliers and is exposed to tariffs, commodity prices, and trade restrictions. Higher input costs could increase manufacturing expenses and pressure margins if the company cannot fully pass those costs on to customers.

This is particularly important because large defense contracts can have long production cycles. A contract may generate substantial revenue yet still produce disappointing earnings if execution is poor.

Hedge Fund Positioning and Short Interest

As of the end of the second quarter, 92 hedge funds held positions in RTX, compared with 95 previously. Fisher Asset Management increased its stake by 3% to approximately $4.3 billion, while Point72 increased its position by 62% to approximately $625.75 million.

Short interest remains relatively low. Approximately 12.95 million RTX shares were sold short as of August 14, representing about 0.96% of public float, indicating limited bearish positioning.

Outlook

RTX Corporation (NYSE:RTX) is entering a period of elevated government spending on missiles, air defense, and military modernization, reinforced by NATO's 2035 spending commitments and allied rearmament programs. The multi-billion-dollar defense backlog and strong book-to-bill ratio provide substantial visibility into future demand, while production expansion could strengthen the company's ability to capitalize on the global defense spending cycle. The company's ability to convert that backlog into profitable revenue, amid production and cost pressures, remains the principal variable to watch.

Disclosure: None.