"The Big Beautiful Money Trail"

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Happy Sunday,

While most Americans were planning their Memorial Day barbecue, the House of Representatives passed the 'One Big Beautiful Bill Act'. This bill is a massive tax/spending package worth over $3 trillion. It extends Trump's 2017 tax cuts and adds new funds for defense, energy, and tech projects.

The bill aims to secure the Tax Cuts and Jobs Act subsidies, set to expire in 2025. It has an estimated impact of $3.1 trillion, including interest, over the next decade.

This write-up is a summary of the 8-page PDF I created to break down this bill and how it might affect my market outlooks. Feel free to message me, and I'll email it to you if you want to read it.

Key Themes

1. The Missile Defense

Reagan's "Star Wars" program sent defense stocks soaring in the 1980s. History could repeat itself but on a much larger scale.

Buried in the bill's legal jargon language is $175 billion allocation for next-generation missile defense systems, with particular emphasis on countering hypersonic threats. The news is calling this the "Golden Dome" initiative, and it represents the largest investment in missile defense technology since the Cold War.

We're talking about accelerating development timelines by 2-3 years.

The numbers:

• $2.2 billion for hypersonic defense systems

• $800 million for next-generation ICBM defense

• $1.97 billion for advanced radar systems

This money isn't being spread evenly across the defense sector. The tech requirements for these systems mean that only a handful of contractors have the capabilities to capture these contracts.

2. America's Fossil Fuel Renaissance

The bill effectively dismantles major portions of the Inflation Reduction Act's clean energy initiatives while simultaneously creating a regulatory fast-track for fossil fuel.

The impact:

• LNG export approvals that previously took 3+ years could now be completed in 12-18 months

• Pipeline permitting timelines could be slashed by 30-50%

• Billions in unspent clean energy subsidies will be rescinded

The implications for natural gas producers and LNG exporters are significant. Bank of America projects U.S. LNG export capacity could increase by 25-30% over the next five years as a direct result of these subsidies.

3. AI Red-tape Removal

The most under reported aspect of this legislation might ultimately be the most consequential: a 10-year moratorium on state-level AI regulation coupled with $500 million for AI-driven federal IT modernization.

This creates a double catalyst for AI companies:

1. Regulatory certainty in a previously uncertain landscape

2. Immediate government contract opportunities

For investors, the implications are clear: companies with established government contracting channels and deployable AI solutions stand to benefit immediately.

Potential Beneficiaries

Defense Sector

Lockheed Martin $LMT ( ▲ 0.31% ) stands head and shoulders above its peers in the missile defense space. As the prime contractor for the Next Generation Interceptor and with extensive hypersonic development programs already underway, Lockheed is perfectly aligned with the bill's priorities.

During their last earnings call, CEO Jim Taiclet specifically highlighted their hypersonic defense capabilities: "We've invested ahead of the curve in this technology, and we're ready to scale rapidly when funding becomes available." That funding has now arrived.

RTX Corporation $RTX ( ▲ 0.11% ) is another prime beneficiary, particularly from the $1.97 billion allocation for improved ground-based missile defense radars. The company recently delivered its 13th AN/TPY-2 radar to the Missile Defense Agency and has unmatched expertise in this domain.

A more speculative approach, L3Harris Technologies $LHX ( ▲ 0.68% ) recent acquisition of Aerojet Rocketdyne strengthens their position in propulsion systems for interceptors and hypersonic vehicles. These are obviously critical components for the systems being funded.

Energy Sector

Cheniere Energy $LNG ( ▲ 0.57% ) is likely the “purest” play on expanded LNG exports. As the largest U.S. LNG exporter with multiple export terminals, Cheniere stands to benefit immediately from streamlined export approvals.

The company has been capacity-constrained not by demand but by regulatory bottlenecks that this legislation specifically addresses. With those bottlenecks potentially removed, Cheniere's growth trajectory could change fast.

 Energy Transfer LP $ET ( ▲ 2.52% ) offers value. Their natural gas pipeline network and cross-border operDDWSations align perfectly with the bill's infrastructure priorities. With a dividend yield currently above 8% and potential for capital appreciation as projects move forward more quickly, ET offers both income and growth potential.

Natural gas producers like EQT Corporation $EQT ( ▲ 0.04% ) also stand to benefit from increased export capacity driving domestic demand. As the largest U.S. natural gas producer, EQT has the scale and asset base to capitalize on improved market conditions.

Tech

In the technology sector, the clearest winners are companies with established government AI contracts and deployable solutions.

Palantir Technologies $PLTR ( ▲ 0.94% ) sits at the intersection of government contracting and AI capabilities. The company already has extensive defense and intelligence community relationships, and the $250 million allocation for Cyber Command AI initiatives creates an immediate revenue opportunity.

 Leidos Holdings $LDOS ( ▲ 2.21% ) offers exposure to both defense technology and government IT modernization. The company's AI and machine learning capabilities for defense applications position it well for the Test Resource Management Center AI funding.

Timeline (If Bill Passes)

Near-Term (0-6 months): Defense contract awards begin; energy permitting acceleration starts showing results for companies with projects in the pipeline.

Medium-Term (6-18 months): LNG export timelines accelerate by 30-50%; AI IT modernization contracts create momentum for recipients.

Long-Term (18+ months): Energy infrastructure transformation reshapes the U.S. landscape; defense tech acceleration creates sustainable competitive advantages for contractors.

Risks

Given the bill's controversial provisions including the largest Medicaid cuts in U.S. history and significant deficit impact… senate passage is uncertain. The legislation passed the House by just one vote (215-214), indicating limited Republican unity even in the more favorable admin.

Other Risks

1. Modifications: The bill must still pass the Senate, where modifications are likely. Fisher Investments notes: "It amounts to mostly extensions of the status quo, with a few additions, a few deletions from past legislation and a few curious provisions that may not survive the Senate."
   

2. Deficit Concerns: The bill "would more than double the current deficit, according to preliminary CBO analysis." This could create pressure for modifications or implementation delays.
   

3. Implementation Timeline: While the bill authorizes funding, the actual appropriation and deployment of funds will depend on agency implementation, which could face delays or modifications.
   

4. Legal Challenges: Some provisions, particularly the state AI regulation moratorium, could face legal challenges that create uncertainty for affected companies.
   

Considerations

1. Overweight Defense: Contractors like Lockheed Martin (LMT), RTX Corporation (RTX), and Northrop Grumman (NOC) are positioned for significant revenue growth from the bill's substantial defense allocations. I’m considering establishing or increasing positions before contract awards begin to materialize.
   

2. Increase Exposure to Traditional Energy: LNG exporters like Cheniere Energy (LNG) and pipeline operators like Energy Transfer (ET) and Kinder Morgan (KMI) stand to benefit from streamlined permitting and export approvals.
   

3. Selective Technology Exposure: Companies with established government AI contracts like Palantir (PLTR) and Leidos (LDOS) offer more direct exposure to the bill's technology provisions than consumer-focused tech giants. Considering more targeted positions rather than broad technology ETFs.
   

4. Reduce Exposure to Clean Energy: Companies heavily dependent on IRA tax credits and subsidies are going to get hit as these programs are rescinded or reduced. This doesn't mean abandoning the sector entirely, but I’m being extra cautious to names in this sector.

Disclosure: Always conduct your own research and consult with a financial advisor before making investment decisions. This analysis reflects Pivot and Flow’s views and isn’t personalized advice. All investments carry risk, including complete loss of principal.

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