As the tensions from the conflict in Iran began to ease (a bit), it was natural to assume defence shares like BAE Systems (LSE: BA.) would take a hit. In recent weeks however, the FTSE 100 firm looks be on a tear once more.

The share price is up 21% in a matter of weeks. It’s only a hair’s breadth from its all-time high of a few months ago. Out of seemingly nowhere, Europe’s largest defence firm has roared into life.

So what’s going on here? What has caused this unexpected and dramatic upswing? To put it simply, why are BAE Systems shares surging?

Glad tidings

The biggest news is that on 30 July the company reported first-half 2026 numbers. And it’s safe to say, it was a good one. Sales, earnings per share, and free cash flow all increased year-on-year.

These weren’t small bumps either, all either near or above the double-digit range. The earnings figure beat analyst expectations, which is always received warmly. To cap things off, the interim dividend was boosted by 11%, and guidance was upgraded too. Not bad.

There’s more to the story as well. A few signed contracts have buoyed the mood, including a £700m extension for a missile and interceptor production joint venture, and a deal with the Ministry of Defence to repair and maintain Spearfish and Sting Ray torpedoes for the Royal Navy.

Also, it’s harder to quantify, but the prolonged cessation of hostilities in Iran likely plays a role. BAE Systems’ share price tends to drop on news of peace and vice-versa.

Potential risks?

That link to wider conflicts does pose a couple of problems. First, there’s the ethical dimension to investing in a company that grows when there’s more war in the world. Some may wish to avoid for this reason.

Second, a move towards peace in the various conflicts around the world (which I’m sure we’re all hoping for) is a potential risk to the stock. Defence companies operate in a sector where their success is sometimes heavily dictated by geopolitical factors. This is a risk all budding investors should bear in mind.

Personally, I think the die is cast in this sense, to some degree at least. Governments are spending more on defence, especially in NATO countries. This is a trend I cannot see reversing in the medium-term.

Coupled with the fact that BAE Systems will produce some of the best products in the sector – take a look at the 4.5th generation fighter plane Eurofighter Typhoon for one prominent example of that – and I’m not surprised to see yet another great earnings call. Even with the stock near record highs, I think it could be worth considering today too.