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Elon Musk's Insane Projection: 7,692,207%
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We covered BWXT — the company that builds the nuclear reactors. We covered General Dynamics — the company that builds the submarines. Today I want to close the triangle with the company that builds the ships those reactors and submarines protect.
Huntington Ingalls Industries is the largest military shipbuilder in the United States. Its Newport News Shipbuilding division in Virginia is the only facility on Earth that builds nuclear-powered aircraft carriers. Its Ingalls Shipbuilding division in Pascagoula, Mississippi builds destroyers, amphibious assault ships, and Coast Guard cutters. Together they have built more ships in more ship classes than any other U.S. shipbuilder.
Newport News has been building ships since 1886 — 140 years. The yard sits on the James River in Virginia. It employs thousands of welders, pipefitters, electricians, and engineers. And it just posted a quarter that shows why this company matters more than its stock price suggests.
Q1 revenue hit $3.1 billion — up 13%. Newport News led with $1.67 billion, up 19%, driven by carrier, submarine, and naval nuclear support work. Ingalls posted $725 million, up 14%, on stronger destroyer volume. Mission Technologies added $748 million in defense IT and unmanned systems.
The backlog tells the story. HII booked $4 billion in new awards in Q1 and now carries $54 billion in total backlog. That’s more than four years of revenue locked in. The Kennedy carrier — CVN-79 — completed builder’s sea trials. The Enterprise — CVN-80 — is under construction. Virginia-class submarines continue at Newport News alongside GD’s Electric Boat.
But the margins are the problem. Operating margin compressed to 5% — down 70 basis points. EPS was flat at $3.79 despite 13% revenue growth. Free cash flow was negative $461 million, driven by working capital needs on long-cycle contracts. The stock is down 10% since earnings.
This is the paradox of military shipbuilding. The demand is massive and locked in. But the contracts are fixed-price or cost-plus with incentive caps. Labor costs are rising. Supply chains are strained. And building a nuclear aircraft carrier takes seven years — any cost overrun compounds over that entire span.
BWXT builds the reactor. GD builds the submarine hull. HII builds the aircraft carrier. These three companies are the U.S. Navy’s industrial base. No other country has this capability. No private company can replicate it. The workforce — nuclear welders, pipe fitters, marine electricians — takes years to train and cannot be offshored.
Management expects a significant cash flow inflection in the second half of 2026. The target is $1 billion in generation, driven by milestones, deliveries, and R&D tax credits. The company is also targeting a 15% improvement in shipbuilding throughput this year as it transitions from pre-COVID to post-COVID contract structures with better pricing.
The bull case is irreplaceability. There is no alternative to HII for aircraft carriers. Period. The Navy cannot go elsewhere. That gives HII a monopoly position similar to BWXT’s in reactors. Defense spending is bipartisan and rising. The $54 billion backlog provides years of visibility. And the H2 cash flow inflection — if it materializes — could reset the stock’s narrative.
The bear case is execution and margins. Revenue is growing, but profits aren’t following. Five percent operating margins on shipbuilding are thin by any standard. Free cash flow was deeply negative in Q1. Legacy contracts priced before inflation hit are still working through the backlog. Analyst estimates have been revised down 9% in the past month.
Here’s the question for investors. Do you buy the monopoly and the backlog, or do you wait for margins to prove out? Yesterday we covered the Jones Act — the law that was supposed to protect American shipbuilding but watched the commercial fleet shrink 94%. Military shipbuilding is different. The demand is guaranteed. The question is whether HII can turn demand into profit. On the James River, 140 years of history says they’ll figure it out.