Ammo to the Future: Why Defense Contractors Like Rheinmetall and Nammo Are Firing on All Cylinders

The drumbeat of geopolitical tension has turned Europe's defense sector into a hotbed of opportunity. With NATO allies racing to meet rearmament targets—Sweden's pledge to hit 3.5% GDP defense spending by 2030 stands out—the demand for ammunition is soaring. This isn't just a short-term blip. It's a structural shift favoring companies like Rheinmetall (ETR: RHM) and Nammo (OMX: NAMMO), which are securing contracts, scaling production, and aligning with NATO's modernization priorities. Here's why investors should load their portfolios with these defense titans.

The Ammo Crunch: Why It's Here to Stay

Modern warfare hinges on artillery, small arms, and air defense—systems that require vast quantities of ammunition. The Ukraine war has exposed global shortages, with prices for 155mm shells quadrupling since 2022. NATO's 2023 agreement to boost defense spending to 5% GDP by 2035 ensures sustained demand. For investors, this is a long-arc opportunity, not a fleeting event.

The European Union's European Sky Shield Initiative (ESSI) and Nordic defense collaboration are just two pillars of a continent-wide push to modernize air defense and artillery. Sweden's decision to prioritize domestic production—evident in its $186 million contract with Nammo for small-caliber ammunition—is a microcosm of this trend.

Rheinmetall: The German Engine of Defense Modernization

Rheinmetall's 2024 €2.7 billion deal to supply Germany's Bundeswehr with 123 Heavy Weapon Carrier vehicles (a 30mm cannon-equipped Boxer variant) is a masterstroke. But its real edge lies in ammunition production. The company aims to ramp output to 1.1 million 155mm rounds annually by 2027, leveraging facilities in Germany, Lithuania, and even Ukraine.

Why buy now?
- Scalability: Its modular production model lets it expand quickly as demand spikes.
- NATO Integration: Systems like the Lynx KF41 infantry fighting vehicle and Skyranger 35 air defense turret are designed for interoperability—critical in a unified NATO force.
- Geopolitical Tailwinds: Germany's €100 billion defense fund and Rheinmetall's partnerships with Spain's Indra and India's Reliance Defence create a global supply chain fortress.

Nammo: Nordic Resilience Meets Strategic Growth

Swedish prime minister Ulf Kristersson's push to triple ammunition production capacity by 2030 has Nammo at the center of it. The company's $186 million 10-year contract for small-caliber ammunition—alongside a May 2025 follow-up order—ensures steady cash flow. But its real ace is Nordic collaboration:

• Nordic Strategic Partnership Agreement (SPA): A pact with Norway, Denmark, and Finland to share stockpiles and production. This reduces risks from supply chain bottlenecks.
• Karlsborg Facility: Sweden's sole 155mm round producer, now set to handle 80% of Nammo's contract volume.
• Technological Edge: Its AI-driven autonomous systems (e.g., the Rheinmetall Mission Master XT UGV) and lightweight ammunition designs cater to Sweden's Arctic warfare needs.

The Bigger Picture: Europe's Defense Renaissance

The European Commission's $300 billion rearmament pipeline (including Sweden's 3.5% GDP pledge) is fueling this boom. Key trends to watch:
1. Vertical Integration: Companies like Rheinmetall are merging production (e.g., ammunition plants) with advanced systems (e.g., AI targeting).
2. NATO Alignment: Firms offering interoperable tech (e.g., Nammo's NATO-standard 155mm rounds) will dominate procurement.
3. ESG-Driven Efficiency: EU subsidies for defense firms adopting green manufacturing (Rheinmetall's ASAP-inspired lobbying) could lower costs and boost margins.

Risks on the Horizon

• Overcapacity: A flood of new production could depress prices post-2030.
• Regulatory Hurdles: EU chemical regulations (REACH) threaten ammunition components.
• Fiscal Slack: Some NATO members might delay spending.

Why these risks are manageable:
- Demand is sticky—NATO's 2035 deadline ensures years of investment.
- Scalable producers like Rheinmetall and Nammo can pivot to export markets (e.g., Ukraine, Middle East).
- ESG compliance is a competitive differentiator, not a barrier.

Investment Thesis: Load Up on Ammunition Giants

• Rheinmetall (RHM): A buy at current levels. With a backlog exceeding €30 billion and 36% YoY revenue growth in 2024, it's a leader in NATO's supply chain.
• Nammo (NAMMO): Hold for growth. Its Nordic ties and production dominance position it to capitalize on Sweden's spending ramp-up.

Final Shot: This Isn't a War Trade—It's a Decade-Long Play

The defense sector isn't just about conflict. It's about resilience, technology, and geopolitical necessity. Rheinmetall and Nammo aren't just selling bullets—they're building the infrastructure of a new European security order. For investors, this is a chance to profit from a structural shift, not a fleeting headline.

Actionable advice:
- Allocate 5–10% of a diversified portfolio to defense equities.
- Target companies with scalable production and NATO contracts.
- Hold for the long term—the next decade will see defense spending outpace most other sectors.

The cannons are roaring, and the smart money is buying.

Data as of July 2025. Past performance does not guarantee future results.