As US President Donald Trump’s tariffs and his shift to Washington’s Ukrainian policy sends trembling through the global stock market, European defense companies are flying high as investors bet on the continent where they are responsible for their own defense.
With Trump’s outreach to Russia and suspension of military aid to Ukraine, European leaders are competing to increase defence spending.
After double-digit profits this week, stocks in top European defense companies are cruised at an all-time high as investors aim to profit from Trump’s “America-first” shake-up.
Germany’s Rhinemetal and Hensalt rose 9% on Wednesday, with more than 90% each since the start of the year.
Both Italian Leonardo and French Thales have earned over 70%, while the UK’s BAE system has grown by around 40%.
In contrast, the benchmark S&P 500, which tracks the performance of the largest 500 US companies, has infiltrated nearly 5% over the past month, down 1.5% compared to the beginning of 2025.
“In response to Trump and (Russian President Vladimir) Putin, Europe will significantly increase defensive spending. Holger Schmeading, chief economist at Belenberg Bank, told Al Jazeera.
“Their long-term outlook is bright. They will also find it easy to attract talent.”
Deciding that Europe has entered an “era of recontracts,” European Commission President Ursula von der Leyen announced on Tuesday it plans to mobilize up to 800 billion euros ($85.4 billion) in new defence spending over four years.
Von Der Leyen said €650 billion ($694 billion) of spending will almost double current spending due to member states, which will increase 1.5% in gross domestic product (GDP).
NATO military planners assume that if Russia attacks Europe, the US will rapidly increase the 100,000 soldiers stationed on the continent to 300,000. However, the Trump administration has made it clear that Europe hopes to lead its defense. I wonder how much the US supports Europe in such a scenario.
Brussels-based think tank Brugel estimates that if Europe did not have a US security umbrella under NATO, it would need to gather additional combat forces of 300,000 soldiers to fight off Russian attacks on European countries. NATO’s European members currently have 2 million active duty soldiers.
Despite a nearly one-third increase between 2021 and 2024, the European Union’s integrated defense spending is far behind the US, falling short of NATO’s targets, with spending equal to 2% of GDP.
According to the European Defense Agency, EU-related spending in 2024 reached 326 billion euros ($348 billion), or about 1.9% of total GDP.
NATO Executive Director Mark Latte said members of the alliance, including all but four countries in the EU, the US, Canada and the UK, need to “fairly higher” defense budgets than 3% of GDP.
Trump, who repeatedly denounced Europe on the free roads of US security guarantees, is pushing NATO members to spend 5% of their GDP.
“We expect European defense spending to reach 3.1% of GDP by 2029 and to rise to another 3.5% by 2032,” Morningstar equity analyst Loredana Muharemi told Al Jazeera.
“If Europe reaches 3.5% of GDP by 2032, this will be converted to an average annual additional $300 million, indicating a 70% increase from the 2024 level.”
Much of this increased spending should benefit European defense contractors through “increasing intra-European sourcing and industrial integration,” Muharemi said.
Muharemi said the European defense sector would also benefit from a large economy of scale.
“Currently, Europe imports 26% of its defense equipment, and 60% of these imports come from the US. We don’t expect Europe to halt US sourcing, but given the immediate need for off-the-shelf capabilities and long-term technical synergies, we can expect a major shift towards in-Europe procurement,” she said.
The European defense industry generated 158.8 billion euros ($169.5 billion) in 2023, an increase of about 17% from the previous year, according to the European Association of Aerospace, Security and Defense Industry.
Still, the continental defense sector has long lagged behind its US counterparts from a business standpoint. US companies won seven spots in 2024 on their list of 10 best-selling defense contractors, including the top five.
According to a 2021 report by Strategy & Strategy, the unit of PricewaterhouseCoopers, the US defense companies increased revenue by 20% to $277 million between 2014 and 2019, while revenue from European companies stagnated at around $100.4 billion.
“To date, the European defense industry lacks the size of its US counterparts and has been characterized by high levels of fragmentation in terms of various weapons systems,” Tobias Mueller, a researcher in defense economics at the HHL Leipzig School of Economics, told Al Jazeera.
“Today, they need to promote industry integration, increase efficiency and effectiveness, invest in innovative defense technologies, improve supply chain resilience, and invest in public-private partnerships.”
Mueller said a shift in focus from the US European security could be a great opportunity for European defense sector to level up.
“This is the “last call” for Europe to invest in more defensive capabilities,” he said.