Last week, The Career Risk That Kills Defense Innovation or Why Nobody gets Fired Buying Boeing

This week, Lockheed Martin… Why? Because their capital allocation strategy reveals a fundamental tension in the defense industrial base.

As always, your feedback shapes our coverage—reply directly with insights or questions.

Lockheed Martin Corporation stands as one of the world's largest defense technology contractors, generating $75 billion in annual revenue from an integrated portfolio spanning fifth-generation fighters, missile defense systems, military helicopters, and strategic space programs.

Lockheed Martin emerged from the 1995 merger of Lockheed Corporation and Martin Marietta, itself a product of the defense industry consolidation era that created the modern "prime contractor" model. The merger combined Lockheed's aerospace heritage, including the legendary Skunk Works responsible for the SR-71 and F-117, with Martin Marietta's electronics and missile expertise.

As of December 31, 2025, the company operates 333 locations primarily in the United States, managing or occupying an additional 9 government-owned facilities under lease and other arrangements. The organization is supported by approximately 123,000 employees, with the company's global footprint extending across more than fifty countries.

Under CEO James Taiclet, a former Air Force pilot who spent most of his executive career in telecommunications, Lockheed Martin's strategic mission centers on delivering what the company terms "21st Century Security,” an integrated approach emphasizing network-centric warfare, 5G integration, AI-powered decision systems, and rapid capability delivery across all warfighting domains. 

2025 Performance:

Lockheed Martin's fiscal 2025 performance demonstrates the continuing viability and financial strength of the traditional prime contractor model. Their industrial capacity and operational experience also provide genuine competitive advantage that emerging companies cannot quickly replicate.

Without wading into the political arena, what do the Primes actually do with their excess capital?

Since 2019, roughly the period when venture-backed defense technology began accelerating, Lockheed Martin has returned approximately $48 billion to shareholders through dividends and buybacks. 

Over that same period, the company deployed roughly $11.2 billion in capital expenditures, averaging about $1.6B per year.

Which is great. Buybacks and dividends generally signal confidence, predictability, and excess cash generation.

But in a strategic competition environment, capital allocation can’t just be a financial signal. Buybacks do not increase missile output. Dividends do not reduce supplier dependency. Earnings smoothing does not accelerate software iteration.

Amazon has never paid a dividend.

For decades, it reinvested aggressively into fulfillment infrastructure, logistics networks, cloud architecture, and automation. It endured criticism about margins and valuation while compounding capacity.

The result was sustained outperformance of the S&P 500 and structural dominance across multiple industries.

Yes, Amazon operates in a larger commercial TAM and no Lockheed isn’t a growth stock.

But Lockheed operates in a 21st-century peer military competition environment.

If reinvestment was justified under retail competition, the strategic logic for reinvestment under great-power competition is arguably much stronger.

According to Lockheed's Fiscal Year 2025 10-K (and years prior):

Sure, maybe 10-K risk factors are general boilerplate.

But if we take these risks at face value, redirecting even 25% of shareholder returns over that period would do substantial work to address the companies main threats to future business.

Consider a reallocation of $10 billion over seven years (2019–2025):

Supply Chain Integration ($3.5B): Targeted investments, not buyouts, in critical component suppliers (propulsion, seekers, guidance electronics) structured to preserve flexibility while reducing dependency risk.

Software Architecture Modernization ($3B): Accelerated modularization, enforcement of open systems architecture, and enterprise-level DevSecOps independent of contract phasing constraints.

Manufacturing Automation and Digital Twins ($2B): Expanded automated production capacity and digital engineering infrastructure across missile and air programs, reducing schedule volatility and labor intensity. This investment particularly matters as production scales simultaneously for F-35, PAC-3, THAAD, helicopters, and space systems.

AI and Autonomous Systems R&D ($1.5B): The 10-K explicitly acknowledges "artificial intelligence technologies have rapidly developed and our business may be adversely affected if we cannot successfully integrate the technology into our internal business processes and product and service offerings in a timely, cost-effective, compliant and responsible manner."

This reallocation would still leave over $37 billion returned to shareholders over the same period.  Would that have guaranteed execution success? No.

But it would have changed Lockheed's structural exposure to the risks it discloses.

A common defense of conservative capital allocation is government demand volatility. There is no doubt, truth to that.

But the F-35 is also expected to have a 77-year lifecycle with thousands of aircraft projected across U.S. and allied fleets and FMS sales increasing over current levels.

If primes cannot justify reinvestment under multi-decade demand certainty, the structure of defense capitalism may be misaligned with strategic competition.

Plus, if Lockheed delivers on schedule, on budget, and with required technical performance, they earn both government confidence (leading to more contracts) and public market confidence (leading to stock appreciation).

Primes operate in a regulated acquisition environment where margins are capped and capital deployment is constrained by program authorization, color-of-money rules, and government demand signals. 

Unlike Amazon, they cannot unilaterally redeploy retained earnings into adjacent markets at will. Excess reinvestment without contractual backing would dilute returns and invite shareholder backlash.

But so ultimately does the public-market prime contractor model incentivize the level of reinvestment required for sustained industrial dominance in an era where production scale, software velocity, and supply chain control are strategic assets?

If the answer is no, the issue is not management. It is an incentive design.