National Security (NAICS 928110): An Investor's Primer

1. Overview

In the North American Industry Classification System (NAICS) — the standard the U.S. Census Bureau uses to categorize economic activity — code 928110, "National Security," is not a private industry in the ordinary sense. It is a government function: Census defines it as "government establishments of the Armed Forces, including the National Guard, primarily engaged in national security and related activities" [2]. In plain terms, 928110 is the U.S. military and defense establishment itself — the Army, Navy, Air Force, Marine Corps, Space Force, National Guard, military bases, and the command apparatus that runs them.

Why should an investor care about a government function? Because it is the single largest customer in the U.S. economy. The federal government does not build its own fighter jets, warships, missiles, satellites, or defense software; it buys them. National-security appropriations flow outward to a private-sector supply chain — the defense industrial base (DIB), the network of manufacturers, technology firms, and service providers that design, produce, integrate, and sustain military capability. That spending, not the government function itself, is what an investor can actually own.

• Public-market investors reach the sector through the large defense "primes," government-technology and services contractors, shipbuilders, space and defense-electronics suppliers, and sector funds.
• Private-market investors reach it through venture capital (VC), private equity (PE), private credit, closely held contract manufacturers, and dual-use technology companies — including a fast-growing crop of venture-backed "defense-tech" firms.

Editorial view. The attraction is durable, government-backed demand and high barriers to entry. The trade-off is a slow, political, heavily regulated market in which contract execution — building on time and on budget, and collecting cash — often matters more than headline budget growth.

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2. What it is and how it's structured

Scope. Code 928110 covers the government establishments that administer and operate national defense: the uniformed services and their reserve components, military bases and installations, military police and courts, and defense training schools (other than the service academies) [2]. It sits inside industry group 9281, "National Security and International Affairs," within the Public Administration sector (NAICS 92).

What it explicitly excludes. This is the most important structural point for an investor: the profit-making companies are not in 928110. The code captures the government buyer, not the private seller. Adjacent codes hold the investable activity:

So the defense industrial base — the part with revenue and profits — lives in manufacturing and professional-services codes. Code 928110 is the government that writes the checks.

Ownership mix. Ownership here is unusual and spans several models:

• Government-owned, government-operated (GOGO): bases, arsenals, depots, and laboratories run by the government itself.
• Government-owned, contractor-operated (GOCO): government-owned facilities run by private firms.
• Contractor-owned, contractor-operated (COCO): the commercial DIB — primes, subcontractors, technology firms, and service providers.
• Nonprofit and academic institutions: federally funded research and development centers (FFRDCs), universities, and research labs [9].

The government controls the customer relationship, the requirements, the security rules, and the funding. Private companies compete to design, build, integrate, operate, and maintain the resulting systems. The commercial layer investors care about is a mix of large public prime contractors, public services/IT firms, PE-owned contractors (e.g. Peraton, Sierra Nevada), venture-backed defense-tech startups, and foreign primes (BAE Systems, Airbus, Leonardo, Rheinmetall) that sell into the U.S. or to allies.

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3. How big it is

A statistics caveat first. Standard Census/Small Business Administration (SBA) business statistics — the Statistics of U.S. Businesses, County Business Patterns, nonemployer counts — exclude Public Administration (sector 92) and most government employees [4][5]. Our ingested ground-truth dataset for 928110 contains no establishment, employment, payroll, or receipts metric, because the government does not report itself as "businesses" [1]. Any measure of this activity's size therefore comes from budget and personnel data, not from the usual business census. This is a definitional gap, not an omission — and standard statistics further undercount the private supply chain, because a small subcontractor is classified under its own manufacturing or service code rather than under defense.

Measured the right way, the scale is enormous. The clearest gauge is the federal defense budget. Figures below are the FY2026 (fiscal year 2026) request as published by the Department of Defense (DoD) Comptroller [6]:

Appropriations and news coverage often frame FY2026 as a "base defense" figure near $895–900 billion and a national-defense total approaching $1 trillion — a nominal record. Those framings are consistent with the Comptroller's numbers once congressionally added and defense-related funding outside DoD is counted.

Two other measures round out the picture:

• People. DoD had roughly 1.32–1.33 million active-duty service members in 2025, plus on the order of 700,000–800,000 civilian employees — about 2.06 million in total, close to half the entire federal workforce; reserve and National Guard components add well over a million more [32].
• Intelligence. The two classified intelligence toplines — the National Intelligence Program (NIP, ~$73 billion) and the Military Intelligence Program (MIP, ~$28 billion) — together approach $100 billion, much of it flowing to the same contractor base [27].

The most-cited supplier measures are DoD contract obligations of about $445 billion in FY2024, split roughly 54% services / 46% goods, spread across a private base estimated at ~200,000 companies [7][9][10]. None of these is "revenue of NAICS 928110" — budget lines are requests, and contract obligations are money legally committed to outside suppliers. But together they make the point: 928110 is one of the largest single economic activities in the country, registering as government spending rather than as a commercial "industry."

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4. The investable universe

Because 928110 is a buyer, the investable universe is the set of companies that sell to it. Company-wide sales and backlog figures below are not 928110 figures — several firms also carry commercial aerospace, business aviation, or civil-government work. Figures are FY2025 as reported by the companies unless noted.

Publicly traded primes and major contractors

Smaller and specialty public names include Textron (TXT), Kratos (KTOS, drones/targets), AeroVironment (AVAV, small unmanned aircraft systems, or UAS), TransDigm (TDG, components), Curtiss-Wright (CW), Mercury Systems (MRCY), Howmet (HWM), and Elbit Systems (ESLT). Foreign-listed primes — BAE Systems (UK), Airbus, Leonardo, Thales, Rheinmetall — are major players but trade on non-U.S. exchanges.

The five largest DoD contractors by FY2024 obligations — Lockheed Martin, RTX, Boeing, Northrop Grumman, and General Dynamics — together captured about 30% of DoD contract obligations, and the top 100 contractors captured roughly 63% [7].

Private and other owners

• Defense-tech "neo-primes." A cohort of venture-funded, software-first firms is challenging the legacy model. Widely reported private valuations include Anduril (~$61 billion in a mid-2026 round), SpaceX (~$1.25 trillion, with a possible initial public offering, or IPO, ahead), Shield AI (~$12.7 billion), and Saronic (~$4 billion). The group drew a record ~$49 billion of venture funding in 2025 [28]. Anduril's investor-relations page states it does not currently offer retail-investor access [23]; SpaceX's national-security arm, Starshield, sells satellite communications, observation, and hosted payloads to the government [25]; and Blue Origin (Jeff Bezos) won a National Security Space Launch (NSSL) Phase 3 Lane 2 provider role [24]. Palantir, now public, is often grouped with these insurgents.
• Private-equity-owned contractors. Peraton (owned by Veritas Capital) [26], Sierra Nevada, and others operate at multibillion-dollar scale without public listings.

Bottom line for allocators. There are ample public plays — this is not a sector where you must go private to get exposure — but the highest-growth, highest-valuation stories (Anduril, SpaceX) are currently reachable only through private, pre-IPO, or secondary channels, with the usual costs: limited disclosure, illiquidity, dilution, and uncertain exit timing.

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5. How the money works

Two distinct "money" stories sit inside this sector.

The government side (no profit). The function itself is funded by congressional appropriations, not revenue. Its "unit economics" are readiness, force structure, and cost per capability — not margin. Money comes in through the annual authorization-and-appropriations cycle and goes out as personnel pay, O&M, and acquisition. Investors earn nothing here; they track it as the demand signal. Judge it by readiness, capability, inventory, and delivery — not commercial profit.

The contractor side (where investors earn). For the companies, the economics are those of a large, cyclical, government-dependent capital-goods and services business. The basic flow: Congress authorizes and appropriates funds → DoD issues a solicitation or contract vehicle → a prime wins the award and subcontracts work → revenue is recognized as products are delivered or services performed → cash arrives via progress payments, milestone payments, or recurring billing. Key concepts:

• Obligation vs. outlay. An obligation is the government's legal commitment to spend; an outlay is the actual cash payment. The two can be years apart.
• Backlog and book-to-bill. Because programs run for years, revenue is unusually visible. Investors watch backlog (contracted future work) and book-to-bill (new orders ÷ revenue; above 1.0 means the pipeline is growing). Backlog is not the same as near-term revenue — it blends funded work, unfunded options, and expected task orders.
• Contract type drives margin and risk. A firm-fixed-price (FFP) contract pays a set amount — higher margin if you execute well, but the contractor eats overruns; fixed-price development deals have produced large, headline losses (notably at Boeing) [11]. A cost-reimbursement contract pays allowable incurred costs plus a fee — lower risk, modest margin, common in early R&D [11]. Cost Accounting Standards (CAS) and government audits govern how costs are allocated and recovered [12].
• Program lifecycle and the sustainment tail. A "program of record" (e.g. the F-35) generates decades of follow-on revenue: development, then production, then a long, high-margin O&M/sustainment and upgrade stream that often outlasts the original build.
• The right operating metrics depend on the business: manufacturers watch production rate, capacity utilization, unit cost, and long-lead materials; services firms watch billable labor, cleared-workforce availability, and recompete win rates; technology firms watch software adoption, recurring revenue, and security accreditation. For all contractors, funded backlog, contract mix, program margin (typically around 10–12% at mature primes), free cash flow (FCF) conversion, capital expenditure, net debt, and estimate-at-completion changes on troubled programs are the core signals.

This is where investable-universe language — dividend yields, valuation multiples, earnings per share (EPS) — genuinely applies. The government function has none of it.

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6. What drives demand

Demand is set by threat perception and politics, not the ordinary business cycle:

• The threat environment. Strategic competition with China (especially the Indo-Pacific) and Russia, the war in Ukraine, and Middle East conflict are the primary drivers [6][9].
• The budget cycle. The National Defense Authorization Act (NDAA) sets policy and top lines; separate appropriations fund it. Record nominal budgets near $1 trillion reflect broad bipartisan support for higher spending [6].
• Modernization priorities. Nuclear-triad recapitalization (Sentinel intercontinental ballistic missile, or ICBM; B-21 bomber; Columbia-class submarine), missile defense, hypersonics, munitions replenishment after Ukraine drawdowns, shipbuilding, space (launch, satellite communications, space-domain awareness), and — most notably this cycle — a heavy tilt toward RDT&E and autonomy/artificial intelligence (AI), with RDT&E growing faster than procurement in the FY2026 request [6].
• Industrial-base policy. The 2024 National Defense Industrial Strategy prioritizes capacity expansion, larger inventories, resilient supply chains, allied production, improved Foreign Military Sales (FMS, government-to-government arms exports), and supply-chain cybersecurity [10].

Editorial view. Demand should stay structurally supported, but it will not move smoothly. Budget growth can take years to convert into awards, production capacity, and contractor revenue. The best-positioned suppliers are those with proven systems, cleared talent, real production capacity, and a credible path from prototype to recurring procurement.

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7. Regulation

For this sector the regulatory environment is the operating environment:

• Authorization and appropriations. Spending requires both an NDAA and enacted appropriations. When Congress misses deadlines, agencies run under a continuing resolution (CR) that freezes funding at prior-year levels and blocks new-program starts — a recurring drag. History also includes the Budget Control Act era and sequestration (automatic across-the-board cuts).
• Acquisition rules. The Federal Acquisition Regulation (FAR) and its defense supplement (DFARS) govern how contracts are competed, priced, and audited [11][13]; the Defense Contract Audit Agency (DCAA) and CAS police cost-based billing [12].
• Security and clearances. Classified work runs under the National Industrial Security Program Operating Manual (NISPOM), administered for cleared contractors by the Defense Counterintelligence and Security Agency (DCSA) [14]. The Cybersecurity Maturity Model Certification (CMMC) sets cyber standards for the supply chain; the governing DFARS rule became effective November 10, 2025 [13].
• Export controls. The International Traffic in Arms Regulations (ITAR) control defense articles and services on the U.S. Munitions List (USML); the Export Administration Regulations (EAR) cover dual-use goods and technology. Violations carry heavy penalties [15].
• Sourcing and foreign ownership. The Berry Amendment mandates domestic sourcing for certain items; the Committee on Foreign Investment in the United States (CFIUS) reviews foreign acquisitions and some real-estate deals for national-security risk [16]. Contractors also face procurement protests, suspension or debarment, intellectual-property restrictions, and False Claims Act liability.

For private investors, regulatory readiness is itself an asset: a company that cannot handle clearances, cybersecurity, export controls, and contract accounting may be unable to convert technical capability into revenue.

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8. Competitive dynamics and consolidation

The DIB behaves like a monopsony — the federal government is effectively the only buyer for many defense products [9]. Competition turns on winner-take-most platform awards, long testing and certification cycles, security clearances, proprietary data and government IP rights, high switching costs once a system is fielded, and scale in manufacturing, compliance, and program management.

The prime tier is the product of decades of consolidation. The number of major U.S. defense prime contractors fell from 51 to 5 by the early 2000s, and as of 2023 those five were prime contractors on more than 74% of DoD's major defense acquisition programs [9]. Barriers to entry — clearances, track records, capital intensity, regulatory complexity — protect incumbents.

Two counter-currents are reshaping the sector:

• Regulators now resist further prime-level consolidation. The Federal Trade Commission (FTC) blocked Lockheed Martin's attempt to buy Aerojet Rocketdyne in 2022 on competition grounds; Aerojet was later acquired by L3Harris [31]. Antitrust scrutiny effectively caps horizontal mergers among the largest players, especially in missiles, propulsion, satellites, shipbuilding, and advanced electronics.
• Defense-tech disruption. Software-first, venture-funded neo-primes — Anduril, SpaceX, Palantir, Shield AI — are challenging the legacy model with autonomy, AI, drones, and space capabilities delivered faster and often at fixed prices. Their combined market values now rival the legacy giants', reflecting investor bets that they will win share [28]. The most credible new entrants often still partner with, or sell into, the prime ecosystem.

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9. Risks

• Budget and political risk. The whole sector rides one appropriations process. Continuing resolutions, shutdowns, debt-ceiling fights, and any future spending caps directly hit revenue and program starts [6].
• Program and execution risk. Programs get delayed, cut, or cancelled; fixed-price development contracts have produced large losses (notably at Boeing).
• Contract risk. FFP exposure, termination for convenience, unfunded options, audits, penalties, and procurement protests can all impair returns.
• Customer concentration. Many contractors depend on a single customer (the U.S. government) and a handful of programs — strong visibility, weak bargaining power.
• Supply-chain risk. Foreign dependencies, sole-source components, critical-mineral shortages, and limited surge capacity are recognized vulnerabilities [8].
• Cyber and workforce risk. Breaches can expose classified or controlled data; shortages of engineers, skilled manufacturing labor, and cleared personnel constrain growth.
• Export and ownership risk. ITAR restrictions and CFIUS review limit international partnerships and foreign capital.
• Valuation and liquidity risk. Public defense stocks can get expensive when investors extrapolate budget headlines, and some observers warn the private defense-tech boom shows bubble characteristics [29]; private positions can stay illiquid for years.
• Reputational/ESG screening. Some environmental, social, and governance (ESG) mandates exclude weapons makers, narrowing the buyer base for the stocks.

The core analytical mistake is treating contract backlog or budget headlines as guaranteed profit. Funding, execution, cost structure, and cash collection determine the outcome.

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10. How to invest and the outlook

Public routes.

• Individual primes (LMT, RTX, NOC, GD, LHX) for direct, dividend-paying exposure to core weapons franchises and their sustainment tails.
• Services/IT names (LDOS, BAH, CACI, SAIC) for a less capital-intensive, labor-driven slice tied to intelligence and software.
• Defense-tech via public markets — Palantir (PLTR) is the main liquid way to buy the AI/software theme; smaller names (KTOS, AVAV) offer drone/autonomy exposure.
• ETFs (exchange-traded funds) for diversified exposure: the iShares U.S. Aerospace & Defense ETF (ITA, market-cap weighted) and the SPDR S&P Aerospace & Defense ETF (XAR, modified equal-weight) are the two largest, with expense ratios around 0.35–0.38%; note both blend commercial aerospace with defense [30].

A practical review should weigh funded backlog rather than headline backlog, contract type and mix, customer concentration, program profitability, cash conversion, capital expenditure, debt and pension obligations, bid pipeline and recompete rates, and exposure to commercial aerospace or civil government.

Private routes.

• Venture and growth funds specializing in defense-tech (e.g. a16z's American Dynamism, Founders Fund, 8VC) are the primary way to reach Anduril, Shield AI, Saronic, and peers [28].
• Pre-IPO/secondary access to marquee names like SpaceX and Anduril is generally limited to accredited investors and secondary-market platforms.
• Private equity owns a substantial slice of the services base (Peraton, Sierra Nevada), typically reached through PE funds.

Before committing private capital, require evidence of a real government customer and a funded contract path; security and cybersecurity readiness; production economics (not just prototype performance); access to cleared labor and compliant facilities; defensible IP and data rights; realistic capital needs; and clear dilution, governance, and exit terms.

Outlook. The near-term demand backdrop is unusually strong: record nominal budgets near $1 trillion, bipartisan support, allied re-armament, and a modernization wave tilted toward RDT&E, autonomy, AI, space, and munitions [6][10]. That favors both the legacy primes (on backlog and sustainment) and the defense-tech insurgents (on growth). The offsetting concerns: real (inflation-adjusted) budget growth is modest despite the big nominal numbers; the appropriations process remains hostage to continuing resolutions and political brinkmanship; awards convert to revenue slowly and unevenly; and valuations — especially in private defense-tech — have run far enough that some analysts see bubble risk [29]. There is no defensible growth rate or revenue estimate for NAICS 928110 itself, because the government-operated category carries no business statistics [1]. The strongest investment cases are companies that control bottlenecked capacity, deliver mission-critical software or electronics, or provide recurring sustainment. For a general investor, the sector offers durable, government-backed demand with genuine cyclicality around the budget calendar — and sizing exposure to that political dependency is the central judgment call.

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Sources

1. Provided federal statistics file, Ingested Official Stats — NAICS 928110 (no ingested metrics), 2026.
2. U.S. Census Bureau, "2022 NAICS Definition — 928110 National Security." https://www.census.gov/naics/
3. U.S. Census Bureau, 2022 NAICS Manual (adjacent manufacturing and services codes). https://www.census.gov/naics/reference_files_tools/2022_NAICS_Manual.pdf
4. U.S. Census Bureau, Statistics of U.S. Businesses (excludes Public Administration). https://www.census.gov/programs-surveys/susb.html
5. U.S. Census Bureau, Economic Census (coverage note). https://www.census.gov/programs-surveys/economic-census.html
6. U.S. Department of Defense, Office of the Under Secretary of Defense (Comptroller), FY2026 Defense Budget Request, 2025. https://comptroller.defense.gov/Budget-Materials/
7. Congressional Research Service, Defense Primer: Department of Defense Contractors (IF10600), 2025. https://www.congress.gov/crs-product/IF10600
8. U.S. Government Accountability Office, Defense Industrial Base: Risks from Dependence on Foreign Suppliers (GAO-25-107283), 2025. https://www.gao.gov/products/gao-25-107283
9. Congressional Research Service, The U.S. Defense Industrial Base: Background and Issues for Congress (R47751), 2024. https://www.congress.gov/crs-product/R47751
10. Congressional Research Service, The 2024 National Defense Industrial Strategy: Issues for Congress (IN12310), 2024. https://www.congress.gov/crs-product/IN12310
11. Acquisition.gov, Federal Acquisition Regulation Part 16 — Types of Contracts. https://www.acquisition.gov/far/part-16
12. Acquisition.gov, Federal Acquisition Regulation Part 30 — Cost Accounting Standards Administration. https://www.acquisition.gov/far/part-30
13. U.S. Department of Defense, DFARS Subpart 204.75 — Cybersecurity Maturity Model Certification (rule effective Nov. 10, 2025). https://www.acquisition.gov/dfars/subpart-204.75-cybersecurity-maturity-model-certification-(cmmc)
14. Defense Counterintelligence and Security Agency, 32 CFR Part 117 — National Industrial Security Program Operating Manual (NISPOM) Rule. https://www.dcsa.mil/
15. U.S. Department of State, Directorate of Defense Trade Controls, International Traffic in Arms Regulations and the U.S. Munitions List; U.S. Bureau of Industry and Security, Export Administration Regulations. https://www.pmddtc.state.gov/
16. U.S. Department of the Treasury, The Committee on Foreign Investment in the United States (CFIUS). https://home.treasury.gov/policy-issues/international/the-committee-on-foreign-investment-in-the-united-states-cfius
17. Lockheed Martin, 2025 Annual Report / Q4 2025 results, 2026. https://investors.lockheedmartin.com/
18. RTX, RTX Reports 2025 Results and 2026 Outlook, 2026. https://www.rtx.com/news
19. Northrop Grumman, 2025 Annual Report / Q4 2025 results, 2026. https://investor.northropgrumman.com/
20. General Dynamics, Fourth-Quarter and Full-Year 2025 Financial Results, 2026. https://www.gd.com/
21. Leidos, Fourth Quarter and Fiscal Year 2025 Results, 2026. https://investors.leidos.com/
22. U.S. Securities and Exchange Commission, Amentum Holdings, Inc. Form 10-K (public listing AMTM since Sept. 30, 2024), 2025. https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=amtm
23. Anduril Industries, Investor Relations, 2026. https://www.anduril.com/investor-relations/
24. Blue Origin, New Glenn Awarded National Security Space Launch (NSSL) Phase 3 Lane 2 Contract, 2025. https://www.blueorigin.com/news
25. SpaceX, Starshield: Supporting National Security, 2026. https://www.spacex.com/starshield/
26. Peraton (a Veritas Capital portfolio company), corporate/newsroom, 2024. https://www.peraton.com/news/
27. Office of the Director of National Intelligence, National Intelligence Program (NIP) budget topline; U.S. Department of Defense, Military Intelligence Program (MIP) topline, FY2025. https://www.dni.gov/index.php/what-we-do/ic-budget
28. CNBC / PitchBook, "Defense-tech venture funding and private valuations, 2025–2026" (Anduril, SpaceX, Shield AI, Saronic), 2026. https://www.cnbc.com/defense/
29. Fortune, "The defense-tech boom has become a bubble — or it will be soon," 2026. https://fortune.com/
30. iShares (BlackRock), U.S. Aerospace & Defense ETF (ITA) fund page; State Street SPDR, S&P Aerospace & Defense ETF (XAR) fund page, 2026. https://www.ishares.com/us/products/239502/ | https://www.ssga.com/us/en/individual/etfs/spdr-sp-aerospace-defense-etf-xar
31. U.S. Federal Trade Commission, "FTC Sues to Block Lockheed Martin's Acquisition of Aerojet Rocketdyne," 2022. https://www.ftc.gov/news-events/news/press-releases/2022/01/ftc-sues-block-lockheed-martins-799-billion-acquisition-aerojet-rocketdyne
32. USAFacts / U.S. Department of Defense, "How many people are in the U.S. military? (active-duty and civilian personnel, 2025)," 2025. https://usafacts.org/articles/how-many-people-are-in-the-us-military-a-demographic-overview/