European defense shares have surged significantly as a blistering rally gathers pace. Major players such as BAE Systems, Rheinmetall, Thales, and Leonardo have recently experienced notable gains. BAE Systems rose by 17% in early trading on Monday, while Germany’s Rheinmetall gained 14%.
France’s Thales increased 16%, and Italy’s Leonardo rose 10%. Expectations of increased military spending among European nations drive this upward trend. Former US President Donald Trump shocked allies by claiming that Ukraine is not “ready for peace” three years after Russia’s invasion.
President Trump has threatened to withdraw US support for Ukraine. In response, UK Prime Minister Keir Starmer hosted a summit with Ukrainian President Volodymyr Zelenskyy and 18 other leaders to form a peace deal. Defense bosses argue that weapons spending should be higher, and politicians are paying attention.
Defense stocks surge with increased spending
Shares in aerospace companies with defense revenues also rose. Airbus gained 3%, France’s Safran was up 2.7%, and Rolls-Royce hit a record high.
The British defense technology company QinetiQ rose 8%, while France’s Dassault Aviation gained 14%. BAE Systems saw a surge as its annual profits topped £3bn for the first time in 2024. Its stock has more than doubled since the start of the war.
Holger Schmieding, an economist at Berenberg, said: “Europe and in particular must – and very likely will – raise defense spending for themselves as well as for Ukraine well beyond recent plans.”
Starmer announced that the UK would raise defense spending to 3% of GDP by 2027, up from 2.3%. Macron called on Europeans to increase annual defence spending to more than 3% of GDP. Germany’s likely new chancellor, Friedrich Merz, is also in talks to push through higher defense spending.
Analysts at JPMorgan said the past two weeks’ events had “turbocharged” their thesis of a European rearmament cycle. They expect many of the 30 European NATO countries will soon commit to much higher defense spending.
Image Credits: Photo by Anne Nygård on Unsplash
