There’s a version of the AI trade that doesn’t involve consumer apps or social media algorithms. It happens in classified facilities. It runs on government contracts. It involves battlefield decision-making, missile defense systems, and the digital backbone of the U.S. military. That’s Leidos (NYSE: LDOS) — and by most conventional metrics, the market is pricing it like none of that matters.
Let’s start with what jumped out in Q1 2026. Revenue came in at $4.40 billion, up 4% year-over-year, with 3% of that organic. Non-GAAP diluted EPS rose 5% to $3.13, beating analyst estimates by 7.6%. Adjusted EBITDA reached $614 million at a 14% margin. Management then raised full-year 2026 revenue guidance to $18.00–$18.40 billion. Guidance raises from government contractors don’t happen often. When they do, they tend to mean something.
The part people skip: Leidos ended Q1 with a record $48.4 billion total backlog — a figure that dwarfs its current market capitalization and implies years of revenue visibility. Funded backlog grew 31% year-over-year. The trailing twelve-month book-to-bill of 1.1 confirms the pipeline isn’t just large — it’s actively replenishing.
Among the notable contract wins: a five-year, $869 million MACRO II task order from the U.S. Army to develop AI-enabled decision support systems for multi-domain battlefield operations. Then there’s the $461 million in cybersecurity awards from DISA — the Defense Information Systems Agency — for 24/7 worldwide cyber defense on the Department of Defense information network.
In March 2026, Leidos completed a $2.4 billion acquisition of ENTRUST Solutions Group, effectively doubling its presence in the energy infrastructure market and adding over 3,100 professionals in electric grid engineering and natural gas infrastructure. The deal is immediately EPS accretive and adds approximately $500 million to fiscal 2026 revenue. It also positions Leidos squarely in the power grid modernization theme — a sector getting serious institutional attention right now as AI data centers strain the electrical grid.
The valuation gap is hard to ignore
Here’s where it gets interesting. Despite all of this, LDOS trades at roughly 10.5x forward earnings — a steep discount to the defense sector median of approximately 17x. One equity research firm pegs fair value at around $218 per share using sector-median multiples applied to FY2026 EPS estimates. That would imply meaningful upside from current levels.
The stock is sitting at what some analysts describe as technically oversold relative to its peer group — the only name in defense services currently flashing that kind of signal.
Leidos sits at the convergence of four spending priorities that appear durable regardless of how Washington reshuffles: defense modernization, AI integration for military systems, cybersecurity infrastructure, and power grid resilience. That’s not a theme built on hype. It’s built on federal budget line items and multi-year contracts.
The risks are worth acknowledging. Government contractors live and die by appropriations cycles. Debt load increased to $6.3 billion following the ENTRUST close. Integration execution will matter. And fixed-price development programs — one flagged this quarter — can compress margins when schedules slip.
But if you’re looking for a defense name that combines AI exposure, grid modernization, and cybersecurity in a single vehicle — and you want to pay single-digit earnings multiples for it — LDOS is quietly one of the more compelling risk/reward setups in the market right now.
Full breakdown worth your time.
This editorial is for informational purposes only and does not constitute investment advice. Past performance is not indicative of future results. All investing involves risk, including the possible loss of principal. Always conduct your own due diligence or consult a qualified financial professional before making any investment decisions.
