• Government spending on naval supremacy fuels stable, long-term growth for America's Undersea Arsenal stocks.
• Key defense contractors and specialized suppliers benefit from high barriers to entry in submarine construction.
• National security priorities provide recession-resistant revenue, making defense a stable investment sector.
• Continuous technology modernization for the submarine fleet ensures decades of sustained investment and growth.

The Silent Guardians of the Deep and Your Portfolio's Potential

In a world where markets seem to lurch from one tech-fuelled frenzy to the next, I find a strange sort of comfort in things that are slow, deliberate, and frankly, a bit boring. While everyone else is chasing the next big thing in software, I’m looking at things that take a decade to build and are backed by the one customer who, for better or worse, always pays its bills. I’m talking about the murky, silent world of submarine construction.

When the US government quietly adds another $1.85 billion contract for submarine materials, it doesn’t make for a flashy headline. There are no charismatic CEOs tweeting from a rocket. But for an investor, that number represents something far more valuable, predictability. It’s a signal of a long term commitment to naval power, a commitment that could offer a steadying hand in a volatile portfolio.

An Almost Unfair Advantage

Let’s be honest, the business of building nuclear submarines isn’t exactly a free market paradise. You can’t just decide to build a shipyard in your back garden and bid for a contract. In the United States, there are precisely two companies capable of the job, General Dynamics and Huntington Ingalls. This isn't a market, it's a duopoly. This structure means they aren’t exactly slashing prices to outbid dozens of rivals.

This creates a rather cosy arrangement. The US Navy needs submarines to replace its ageing fleet, a process that will take decades, not years. These companies have a guaranteed customer with a multi-year shopping list. Unlike a car manufacturer that has to worry about consumer confidence and recessions, these shipbuilders operate on a timeline dictated by national security, which, as you may have noticed, is a growth industry. This government backing provides a level of revenue stability that most commercial companies can only dream of.

Digging Deeper Than the Hull

While the big shipbuilders get the attention, the real story, to me, often lies one layer deeper. A submarine is not just a steel tube. It’s one of the most complex machines ever created, a web of advanced electronics, sonar systems, and secure communications. This is where you find the specialists, the companies that provide the boat’s eyes and ears.

Think of a company like Northrop Grumman. They design the sophisticated sonar systems that allow a submarine to navigate the abyss and detect threats without being seen. Once their technology is designed into a Virginia-class submarine, do you think the Navy is going to rip it all out and try something new? Not likely. The switching costs are astronomical. It’s this intricate network of essential suppliers that makes a theme like America's Undersea Arsenal so compelling. You’re not just looking at one or two giants, but an entire ecosystem built on expertise and high barriers to entry.

Mind the Political Tides

Of course, no investment is without risk, and defence is no exception. This isn't a "fire and forget" opportunity. These programmes are subject to the whims of politicians and budget cycles. While submarine funding tends to have broad support, a sudden shift in political priorities could always slow things down. Cost overruns are another perennial feature of large defence projects, which can sometimes squeeze profit margins. Investing here requires a belief that the strategic need for undersea dominance will outweigh the inevitable political squabbles and budgetary headaches. To me, that seems like a reasonable wager, but it’s a wager nonetheless. The long term trend seems set, but the journey could still encounter choppy waters.

Deep Dive

Market & Opportunity

• A $1.85 billion contract modification has been issued for Virginia-class submarine materials, providing long-term revenue visibility.
• The U.S. Navy has a stated goal of maintaining a 66-submarine fleet, requiring sustained construction rates for decades.
• Government-backed spending on multi-year procurement schedules provides stability and recession-resistant revenue streams for contractors.

Key Companies

• General Dynamics Corporation (GD): The prime contractor for Virginia-class submarine construction through its Electric Boat division, which has over a century of experience in the field.
• Huntington Ingalls Industries, Inc. (HII): The only other American shipyard capable of building nuclear submarines, forming a duopoly with GD. Its Newport News Shipbuilding facility also produces aircraft carriers.
• Northrop Grumman Corporation (NOC): A specialized supplier providing advanced sonar, sensor arrays, and electronic warfare systems for submarines, creating recurring revenue through system upgrades.

Primary Risk Factors

• Budget cycles can create volatility in the timing of contracts.
• Political changes may alter future procurement priorities.
• Complex defense programs can experience cost overruns, potentially reducing contractor margins.
• International competition and the defense programs of allied nations add complexity to the market.

Growth Catalysts

• The need to replace aging Cold War-era vessels drives long-term demand.
• The modular design of Virginia-class submarines allows for continuous technology insertions, creating ongoing revenue opportunities.
• Evolving threats require new capabilities like hypersonic weapon integration, autonomous underwater vehicles, and advanced cybersecurity.
• High barriers to entry, including specialized knowledge and facilities, protect the market position of established companies.

Investment Access

• The America's Undersea Arsenal basket is available on the Nemo platform.
• Nemo is an ADGM-regulated platform.
• The platform offers commission-free investing and AI-driven research.
• Investments can be made through fractional shares starting from $1.