As United States President Donald Trump’s tariffs and his shift in Washington’s Ukraine policy send shivers through global stock markets, Europe’s defence firms are flying high as investors bet on the continent taking charge of its own defence.
With Trump’s outreach to Russia and his suspension of military aid to Ukraine raising doubt about US commitment to Europe’s security, European leaders are racing to ramp up defence spending.
After racking up double-digit gains this week, shares of top European defence companies are cruising at all-time highs as investors look to profit from Trump’s “America First” shake-up of the international order.
Germany’s Rheinmetall and Hensoldt, which rose as much as 9 percent on Wednesday, are up more than 90 percent and 100 percent, respectively, since the start of the year.
Italy’s Leonardo and France’s Thales have both gained more than 70 percent, while the United Kingdom’s BAE Systems is up about 40 percent.
In stark contrast, the benchmark S&P 500, which tracks the performance of 500 of the biggest US companies, has dipped nearly 5 percent during the past month and is down 1.5 percent compared to the beginning of 2025.
“In response to Trump and [Russian President Vladimir] Putin, Europe will raise its defence spending significantly. That is very positive for its defence companies,” Holger Schmieding, chief economist at Berenberg Bank, told Al Jazeera.
“Their long-term prospects are bright. They will also find it easier to attract talent.”
Declaring that Europe had entered an “era of rearmament”, European Commission President Ursula von der Leyen on Tuesday announced plans to mobilise up to 800 billion euros ($854bn) in new defence spending over four years.
Von der Leyen said 650 billion euros ($694bn) of the spending could be achieved by member states raising their defence budgets by 1.5 percent of gross domestic product (GDP) – a near doubling of current expenditures.
NATO military planners have worked on the assumption that if Russia attacks Europe, the US would rapidly increase its 100,000 soldiers stationed on the continent to 300,000. However, the Trump administration has made clear that it wants Europe to lead its defence — calling into question just how much the US might support Europe in such a scenario.
Brussels-based think tank Bruegel has estimated that if Europe did not have the US security umbrella under NATO, it would need to assemble an additional fighting force of 300,000 soldiers to repel a Russian attack on a European country. NATO’s European members have a combined two million active-duty soldiers at present.
Despite rising by nearly one-third from 2021 to 2024, the European Union’s combined defence spending lags far behind the US and falls just short of NATO’s target for expenditures equalling 2 percent of GDP.
The EU’s military-related expenditures in 2024 came to 326 billion euros ($348bn), or about 1.9 percent of the combined GDP, according to the European Defence Agency.
NATO Secretary-General Mark Rutte has said the members of the alliance, which includes all but four of the EU states as well as the US, Canada, and the United Kingdom, would need to raise defence budgets to “considerably more” than 3 percent of GDP.
Trump, who has repeatedly accused Europe of freeloading on US security guarantees, has pushed for NATO members to spend 5 percent of GDP.
“We anticipate European defence expenditure will reach 3.1 percent of GDP by 2029 and climb further to 3.5 percent by 2032,” Loredana Muharremi, an equity analyst for Morningstar, told Al Jazeera.
“Should Europe reach 3.5 percent of GDP by 2032, this would translate on average to an additional $300bn per year, marking a 70 percent increase from 2024 levels.”
The bulk of this increased spending should benefit European defence contractors through “increased intra-European procurement and industry consolidation,” Muharremi said.
Muharremi said the European defence sector also stands to benefit from bigger economies of scale.
“Currently, Europe imports 26 percent of its defence equipment, with 60 percent of those imports coming from the US. While we do not expect Europe to halt US procurement – given the immediate need for off-the-shelf capabilities and long-term technological synergies – we anticipate a significant shift towards intra-European procurement,” she said.
Europe’s defence industry generated a turnover of 158.8 billion euros ($169.5bn) in 2023, up about 17 percent from the previous year, according to the Aerospace, Security and Defence Industries Association of Europe.
Still, the continent’s defence sector has long lagged behind its US counterpart in business terms. US firms took seven spots on the list of the 10 highest-grossing defence contractors in 2024, including the top five.
According to a 2021 report by Strategy&, a unit of PricewaterhouseCoopers, US defence firms grew their revenues 20 percent to $277bn from 2014 to 2019, while European firms’ revenues stagnated over the period at about $100.4bn.
“So far, the European defence industry lacked the scale of their US counterparts, and was characterised by a high level of fragmentation in terms of variety of weapon systems,” Tobias Mueller, a researcher in defence economics at the HHL Leipzig Graduate School of Management, told Al Jazeera.
“Going forward they need to drive consolidation of the industry, increase efficiency and effectiveness, invest into innovative defence technologies, and improve the resilience of the supply chain and invest into public-private partnerships.”
Mueller said the US’s shift in focus away from Europe’s security could be a golden opportunity for the European defence sector to level up.
“This is the ‘last call’ for Europe to invest in more defence capabilities,” he said.
