6 stocks to benefit from EU defence boom
Europe’s Military Spending is Exploding – But Which Stocks Will Win?
Europe’s Military Spending is Exploding – But Which Stocks Will Win?
Defense budgets are surging across Europe, driving record stock gains. But with political risks, supply chain hurdles, and shifting NATO dynamics, not every company will benefit equally. Here’s where the real opportunities—and pitfalls—lie.
European defense stocks have been on a tear over the last year, with companies like Rheinmetall, BAE Systems, Leonardo, and Saab posting record gains. The war in Ukraine, rising global tensions, and NATO’s pressure on member states to hit 2%+ of GDP in military spending have fueled a historic upcycle for European defense contractors.
But is the boom sustainable? Or are investors getting ahead of themselves?
There’s no doubt that money is flowing into defense, but political infighting, slow EU bureaucracy, and an unpredictable Trump factor could shake things up. Today, we break down what’s real, what’s priced in, and what investors need to watch next.
Recent Performance Trends
European defense stocks have rallied sharply over the past year, buoyed by increased military spending amid geopolitical tensions. The European aerospace & defense index has more than doubled since early 2022, recently hitting an all-time high. Many of these stocks reached record levels in early 2025 as investors anticipated further defense budget hikes. The sector’s rally to record highs underscores the surging demand and positive earnings momentum across the board.
Key Stock Performance Highlights:
Rheinmetall (RHM.DE): The German arms maker’s share price surged over 130% in the past 12 months. It hit a record €909 in Feb 2025, jumping 11% in one day on expectations of higher European defense outlays. Strong demand drove revenue and profit growth (2023 revenue up ~12% YoY), and Rheinmetall was added to the DAX index amid its rise. Q2 2024 operating profit doubled on surging defense orders.
ThyssenKrupp (TKA.DE): The conglomerate’s stock lagged pure-play defense peers in 2023 but spiked ~20% in early 2025 as defense enthusiasm grew. Shares hit their highest level since April 2024 on speculation that ThyssenKrupp will spin off its Marine Systems unit (which builds submarines) at a high valuation. A €4.7 billion order for four submarines from ThyssenKrupp Marine Systems bolstered its backlog.
Saab AB (SAAB-B.ST): Sweden’s defense firm saw its stock climb ~50% over the past year, touching all-time highs (SEK 312). Robust order intake was a key driver, as Saab’s 2024 orders jumped 24% YoY to a record SEK 96.8 billion. Organic sales grew ~23% in 2024, surpassing guidance, with strong demand for aircraft, anti-tank weapons, and radar contracts.
Leonardo S.p.A. (LDO.MI): Italy’s largest defense group rebounded to multi-decade highs. The stock gained 30–40% over the past year (approaching levels last seen in 2000). Leonardo beat its 2024 guidance, with orders rising to €20.9 billion (+17% YoY) and revenues to €17.8 billion (+11% YoY), driven by its defense and security units. Free cash flow hit €826 M (+27%), fueling investor optimism.
BAE Systems (BA.L): The UK defense giant’s shares have been on a steady uptrend, though less explosive than some EU peers. The stock is up ~14% year-to-date 2025 and remains near historical highs (£13+ per share). 2024 sales grew 12% YoY to £28.3 billion, with record order intake of £33.7 billion, lifting its backlog to an all-time high of £78 billion.
Thales S.A. (HO.PA): The French defense electronics leader has seen steady gains, with its stock near record highs reached in mid-2024. Over the past year, Thales shares are up in the high-single to low-double digits. The company’s order backlog is at record levels, equivalent to nearly four years of revenue in its defense segment. 2024 organic sales growth hit ~6%, and it is targeting 5–7% organic revenue CAGR from 2024–2028, with 13–14% operating margins.
Price Targets & Risk Factors
Trump’s NATO Pressure: Will Europe Be Forced to Buy American?
One overlooked risk is Trump’s potential NATO stance. Trump cuts Pentagon spending and pressure NATO allies to buy more American-made weapons (e.g., Lockheed, Raytheon, Boeing) to compensate. Today Wells Fargo cut price targets on some of those companies by 5-10%. This could take away contracts that would otherwise go to European firms.
If European governments bow to U.S. pressure, stocks like Rheinmetall, BAE, and Leonardo could face headwinds as military orders shift toward American suppliers. However, if the EU maintains its preference for domestic defence procurement, European firms should continue to thrive under NATO’s spending commitments.
Final Verdict: Is This a Buy?
✅ Long-Term Investors: The structural demand for European defense is real. Stocks like Rheinmetall, Leonardo, and BAE remain attractive as long-term plays.
⚠️ Short-Term Traders: Stocks have already rallied hard—expect volatility. Political risks in Germany and the U.S.-EU relations could shake things up.
💡 Key Takeaway: Watch Germany’s Bundestag, NATO spending commitments, and Trump’s NATO stance—these factors will decide whether European defense stocks continue their surge or hit a political roadblock.
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