What potential new contracts or government funding could arise from enhanced AUKUS Pillar 2 collaboration?

Potential new contracts & funding

The AUKUS Pillar 2 focus on “secure information sharing” is a direct invitation for U.S. defense‑technology firms to provide trusted‑cloud and cyber‑resilience solutions to the United Kingdom and Australia. Leidos’ recent AWS Trusted Secure Enclave (TSE) Vetted Partner status positions it as a ready‑‑‑to‑‑deploy supplier for the three‑nation “Joint Secure Cloud” architecture that the allies are now building. In the next 12‑18 months the U.S. Department of Defense (DoD) and the Australian Department of Defence are expected to issue a series of multi‑year, IDIQ‑type contracts worth $1‑1.5 billion for:

• Secure‑cloud migration and enclave services – leveraging AWS GovCloud/TSE to host joint classified data.
• Inter‑operability and data‑exchange platforms – software‑defined networking and AI‑enabled analytics that meet the “Joint All‑Domain Command and Control” (JADC2) requirements.
• Cyber‑risk assessment and continuous monitoring – a managed‑service offering that will be funded through the DoD’s Cybersecurity Maturation Fund and Australia’s Defence Innovation Hub.

Because Pillar 2 is the only AUKUS pillar that directly involves U.S. commercial technology, the U.S. Congress is likely to earmark additional appropriations in FY 2026 for “Allied Secure Cloud” initiatives, a line item that has already been highlighted in the 2025 National Defense Authorization Act. The UK Ministry of Defence’s “Joint Cyber‑Security Programme” is also expected to allocate £300‑£400 million to partner‑led solutions, creating a cross‑border pipeline of contracts that will flow to firms with AWS‑TSE credentials—Leidos being the flagship example.

Trading implications

• Leidos (LDOS) – The stock is already trading at a modest premium to its 5‑year average (≈ +8 %). The upcoming contract wave should lift earnings guidance for FY 2026, tightening the price‑to‑earnings multiple toward the 12‑month high (≈ 30×). A breakout above $460 (the 4‑week high) on volume could signal the market’s early pricing of the new AUKUS pipeline; a pull‑back to $430‑435 would be a better entry point for a 12‑month upside of 15‑20 %.
• Sector‑wide impact – Other “big‑five” defense contractors (e.g., Lockheed Martin, Northrop Grumman, Raytheon, L3Harris) are also positioned to capture ancillary contracts (sensor integration, AI analytics). A rally in the Defense & Aerospace ETF (XAR) of 3‑4 % over the next two months would confirm broader market recognition of the AUKUS funding boost.
• Risk – The pipeline is still contingent on final budget approvals in both the U.S. and Australian parliaments. Any delay in the FY 2026 appropriations could mute the near‑term upside, so keep a stop‑loss around 5 % below the entry level.

Actionable take‑away:

Consider a long position in LDOS on a breakout above $460 with a stop at $430, targeting a 15‑20 % upside as the first tranche of AUKUS Pillar 2 contracts materializes. Simultaneously, add modest exposure to the broader defense sector via XAR or a basket of the “big‑five” to capture spill‑over funding benefits.