Small defense stocks underperform, analysts see opportunity in budget squeeze

Small and mid-cap defense names have slid 21% since the Iran war began, underperforming large primes. A flood of IPOs, midterm anxiety, and budget uncertainty are pressuring the group. But analysts argue a spending squeeze could accelerate a shift to cheaper drones and AI, benefiting smaller suppliers. Karman and Mercury Systems are highlighted as multi-platform plays at lower multiples.