Long-Term Defense Prospects Outweigh Karman Holdings’ Short-Term Headwinds

Fred Alger Management’s Q2 2026 investor letter highlights a robust rebound in US equities, emphasizing the strategic resilience of defense technology giant Karman Holdings (NYSE:KRMN) despite facing recent headwinds. While markets reacted with surprising optimism to a ceasefire between the US and Iran and accelerated investments in artificial intelligence—driving the S&P 500 to a 15.2% return—Karman Holdings shares have slumped by 17.88% over the last 52 weeks. Nevertheless, the fund management argues that these short-term dips obscure the company's substantial long-term potential driven by expanding government and commercial space budgets.

Market Rebound Fueled by Geopolitical Calm and AI Surge

Key market dynamics were shaped by easing geopolitical tensions and a new era in technology investment:

■ The S&P 500 Index posted a strong recovery of 15.2% in the second quarter.

■ A ceasefire between the US and Iran and the momentum in AI investment propelled Information Technology and Industrials sectors forward.

■ Energy and Utilities sectors lagged behind due to falling oil and gas prices.

■ Alger Mid Cap Focus Fund's Class A shares outperformed the Russell Midcap Growth Index, driven by gains in tech and healthcare.

Navigating Near-Term Turbulence at Karman Holdings

Despite manufacturing critical components for launch vehicles and hypersonic systems, Karman Holdings faced a series of setbacks that weighed on investor sentiment:

■ The company's stock closed at $46.17 on July 17, 2026, reflecting a market capitalization of $6.12 billion.

■ Shares posted a one-month return of -3.21% and lost 17.88% over the past 52 weeks.

■ Investors focused on near-term concerns, including an earnings shortfall, an auditor change following internal control disclosures, and a secondary offering by existing shareholders.

■ Sector sentiment weakened broadly following a Blue Origin rocket incident, impacting space-related stocks.

Strategic Positioning in Hypersonics and Aerospace Expansion

Despite the volatility, Fred Alger Management maintains confidence in the fundamental value of Karman Holdings. Serving defense primes and government agencies, the company is positioned to capitalize on expanding budgets:

■ The firm’s differentiated engineering capabilities provide visibility into long-term defense contracts.

■ Growing demand in space, missile defense, and hypersonics programs offers a significant growth runway.

■ Expanding government and commercial space budgets support the company's long-term opportunity thesis.

■ As AI enters its "agentic" phase, sectors adopting this technology are expected to yield new opportunities.

While geopolitical tensions appear to be easing, the structural increase in defense spending remains inevitable. Rising budgets across Europe and the US are positioning tech-driven defense firms like Karman for sustained long-term relevance. Short-term operational noise should not overshadow the strategic value these companies hold in a evolving security landscape.