Electronic Warfare Is Now a Tech Phenomenon. Markets Are Just Beginning to Price It That Way
Northrop Grumman shares rose more than 10% in a single week during early July 2026. RTX Corporation climbed more than 7% over the same period. The iShares U.S. Aerospace and Defense ETF (ITA) has been outperforming the broader S&P 500 year-to-date in 2026, though it has underperformed since the Iran conflict began at the end of February — a divergence that contains an important analytical signal about how the market differentiates within the defense sector rather than treating it as a monolithic category. The comment from Panmure Liberum strategist Joachim Klement that captured the most attention during this period was direct: "Electronic warfare is a tech phenomenon. These companies need to be traded like tech companies."
That framing is analytically correct in a specific and important sense. Traditional defense company valuation relied on revenue backlog, programme stability, cost-plus contract economics, and congressional appropriations visibility. Electronic warfare companies have those characteristics but add a distinctly technology-sector dynamic: rapid capability iteration, software-defined systems that can be upgraded through firmware rather than hardware replacement, and competitive moats built on proprietary signal processing algorithms and AI-driven threat identification rather than on manufacturing scale or government certification alone. The investment analytical frameworks appropriate for software companies — recurring revenue, platform economics, switching costs — are more descriptive of how leading electronic warfare businesses create value than the project-based, capital-intensive frameworks that have historically governed defense company valuation.
What the Iran Conflict Has Revealed About Electronic Warfare
The U.S.-Iran conflict that began in late February 2026 has provided more real-world operational data on electronic warfare system performance in a high-density contested electromagnetic environment than any exercise or simulation programme could generate. The conflict has specifically validated several capability gaps that the U.S. and allied defense establishments had identified in planning but not confirmed in operations: the effectiveness of Iranian electronic jamming against GPS-guided munitions requiring the parallel deployment of inertial navigation system backup guidance; the performance of Iranian drone swarms against radar systems designed for conventional aircraft threat profiles; and the critical role of spectrum management — allocating and protecting frequencies for communications, targeting, and navigation — in a conflict environment where adversaries are actively contesting electromagnetic spectrum control.
Each of these operational lessons is generating specific procurement requirements that translate directly into revenue for electronic warfare system developers. GPS-resistant guidance systems for munitions — already in development at Raytheon and L3Harris — are being accelerated from planned procurement timelines to emergency acquisition programmes. Counter-drone electronic warfare systems that can detect, classify, and jam the communications links controlling drone swarms without disrupting friendly communications on adjacent frequencies are in active competition, with Northrop Grumman, BAE Systems, and several smaller electronic warfare specialists all pursuing contract awards that are being funded from the conflict-related supplemental defence budget. The spectrum management and cognitive radio systems that allow military communications to automatically avoid jammed frequencies — a capability area where Northrop Grumman's mission systems division has significant proprietary technology — are being prioritised for integration into every major U.S. military platform from aircraft to ships to ground vehicles.
The Software-Defined Defence Transition
The most commercially significant structural shift in electronic warfare is the move from hardware-defined to software-defined systems — a transition with direct parallels to the shift from hardware-defined to software-defined networking that transformed the enterprise IT industry in the 2010s. In hardware-defined electronic warfare, a system's capabilities are determined by its physical components — antennas, receivers, transmitters, and signal processors. Updating the system's capabilities requires replacing hardware components, typically at significant cost and operational downtime. In software-defined electronic warfare, the same hardware can be programmed to perform different functions — jamming different frequencies, detecting different signal types, spoofing different guidance systems — through software updates that can be deployed remotely and rapidly.
This software-defined architecture creates an economic model for electronic warfare that looks more like enterprise software than defense hardware manufacturing. Companies with proprietary signal processing software libraries, threat classification AI models trained on classified adversary electromagnetic signature data, and open architecture hardware platforms that can run third-party mission modules are building platform businesses with recurring update revenue, integration ecosystem economics, and competitive moats that are substantially more durable than those based on hardware manufacturing capability alone. The market's re-rating of electronic warfare companies — Northrop's 10% weekly gain in a market where semiconductors were falling — reflects the beginning of a valuation framework transition that will likely take 18 to 24 months to fully complete as investors develop the analytical tools appropriate for software-model defense businesses.
The European Defence Technology Opportunity
European market watchers' observation that "future winners may look more like software and AI companies than traditional arms manufacturers" is particularly significant in the context of European defense spending growth. NATO member states that have increased defense budgets following Russia's Ukraine invasion and the Iran conflict's demonstration of electronic warfare's centrality are allocating a growing proportion of those budgets to electronic warfare capability — communications security, radar modernisation, counter-drone systems, and cyber-electromagnetic activity. European defense companies including Leonardo, Thales, and Saab have electronic warfare divisions that are growing faster than their platforms businesses, and the market's re-rating of electronic warfare as a technology category rather than a defense hardware category will benefit European electronic warfare specialists as investors apply equivalent analytical frameworks to listed European defense companies whose electronic warfare assets have been undervalued relative to U.S. peers.
The ITA ETF's underperformance since the Iran conflict began — despite the individual stock strength in electronic warfare names — reflects a composition issue: the ETF includes significant weightings in traditional defense prime contractors, commercial aerospace, and defense logistics companies whose Iran conflict exposure is cost-pressure negative rather than revenue-positive. The analytical lesson for investors seeking electronic warfare exposure is that broad defense ETF ownership is a blunt instrument — the electronic warfare value story requires stock-specific exposure to the companies with the specific signal processing, AI-driven threat classification, and software-defined architecture capabilities that the current operational environment is validating at scale.
What This Means for Market Participants
Defense sector investors should build dedicated analytical frameworks for electronic warfare companies that incorporate software business metrics — annual recurring revenue from capability updates, platform integration ecosystem breadth, AI model improvement trajectories — alongside traditional defense metrics of contract backlog and programme visibility. The Panmure Liberum framing that electronic warfare "needs to be traded like tech companies" is not a rhetorical flourish; it is an analytical instruction that the companies generating the most durable value in this category are doing so through software economics, not hardware manufacturing economics. The next 12 months of earnings releases will provide the data required to calibrate those models with the revenue quality and margin structure evidence that differentiates the electronic warfare category's genuine software businesses from the hardware companies that have adopted software-forward marketing language without the underlying business model transition.