The U.S. defense sector is bracing for turbulence in 2025 as Goldman Sachs downgraded a key player in the industry and reiterated a bearish outlook on other defense stocks, citing risks tied to a slowing Pentagon budget and margin pressures.

The defense budget, which has more than doubled over the past decade, could see deceleration — or even contraction — under the watch ofDonald Trump's newly formed Department of Government Efficiency led byElon MuskandVivek Ramaswamy.

"We remain cautious on defense stocks as we see decelerating and potentially negative growth in the forward U.S. Department of Defense...