Defense Industry Stocks: Capitalizing on the European Reararmament Surge

The European defense landscape is undergoing a seismic shift. Driven by Russia’s ongoing invasion of Ukraine, NATO modernization efforts, and a recalibration of transatlantic security priorities, defense spending across the continent is surging. For investors, this represents a golden opportunity to capitalize on a durable upswing in demand for defense technology, munitions, and air defense systems. At the heart of this transformation is Germany’s €1.5 billion Patriot missile procurement, a move that underscores the continent’s pivot toward self-reliance and strategic autonomy.

The Catalyst: Germany’s Patriot Procurement and Ukraine Aid

Germany’s decision to purchase 300 Patriot missiles from the U.S. under a four-year, €1.5 billion contract [1] is emblematic of a broader trend. This procurement is not merely a defensive measure but a strategic investment in European security. By securing priority access to U.S.-produced PAC-3 MSE interceptors through a $9.8 billion Lockheed Martin contract [4], Germany is ensuring a steady supply of advanced air defense systems for both its own military and Ukraine.

The country’s commitment to Ukraine is equally significant. Germany has delivered five Patriot systems to Kyiv in 2025, with plans to replace these with newer models from U.S. suppliers [2]. Norway has pledged $692 million to offset the cost of these donations [3], illustrating the collaborative nature of European defense spending. These actions align with Ukraine’s own defense budget surge, which includes a $10 billion boost in 2025, with 60% of redirected personal income tax revenue allocated to procurement of drones, weapons, and military equipment [1].

The Bigger Picture: European Defense Spending and NATO Modernization

The Heritage Foundation’s 2025 report on European defense spending highlights a critical shift in priorities. Eastern European NATO members, particularly Poland and the Baltic states, have increased defense budgets to 3-5% of GDP, driven by proximity to Russian threats [4]. Meanwhile, larger economies like Germany and France are under pressure to close the gap. The EU’s Readiness 2030 plan, which includes a €150 billion loan instrument for missile defense and cyber capabilities [3], further signals a long-term commitment to modernization.

This surge in spending is not limited to traditional air defense systems. Ukraine’s reliance on long-range drones—financed in part by German aid [2]—has spurred demand for advanced electronic warfare and drone production. Companies like Kongsberg and Hensoldt, which supply radar and missile systems to Ukraine, are already benefiting from this trend.

Investment Opportunities: OEMs, Munitions Producers, and Tech Suppliers

The defense industry’s value chain is ripe for strategic investment. Key beneficiaries include:

1. Defense OEMs:
2. Lockheed Martin (LMT): The U.S. defense giant’s $9.8 billion PAC-3 MSE contract [4] ensures steady revenue for years. With Germany and other NATO allies prioritizing Patriot systems, LMT’s market share in air defense is set to grow.

3. Raytheon Technologies (RTX): The $1.2 billion contract to supply additional Patriot systems to Germany [5] underscores RTX’s role in Europe’s rearmament.

4. Munitions Producers:

5. Diehl Defence (Germany): As a key supplier of guided munitions and air defense systems, Diehl is positioned to benefit from Germany’s €1.5 billion procurement and broader European demand.

6. Nexter Systems (France): With France’s push to increase defense spending, Nexter’s 155mm artillery systems and anti-drone solutions are gaining traction.

7. Drone and Electronic Warfare Firms:

8. Elbit Systems (Israel): Its advanced electronic warfare systems are in high demand for countering Russian drones in Ukraine.
9. Aerovision (France): A leader in long-range drone production, Aerovision is well-positioned to capitalize on Ukraine’s €15 billion aid package [2].

The Investment Thesis: Durable Demand and Geopolitical Tailwinds

The European rearmament surge is not a short-term spike but a structural shift. With Russia’s military modernization and China’s assertive posture in the Indo-Pacific, defense spending is likely to remain elevated for the foreseeable future. The Heritage Foundation notes that European NATO members are now allocating 40% more to defense than in 2020 [4], a trend mirrored in private sector R&D investments.

For investors, the key is to target companies with recurring revenue streams, technological differentiation, and exposure to high-growth segments like air defense and electronic warfare. Germany’s €1.5 billion Patriot deal, coupled with Ukraine’s $10 billion defense budget [1], provides a clear roadmap for where capital will flow.

Conclusion

The European defense industry is entering a golden age. By investing in leading OEMs, munitions producers, and tech innovators, investors can position themselves to benefit from a multi-year upswing in demand. The time to act is now—before the next round of geopolitical shocks further accelerates this transformation.

**Source:[1] Germany intends to purchase 300 Patriot missiles from the U.S. [https://en.apa.az/europe/germany-intends-to-purchase-300-patriot-missiles-from-the-us-477118][2] Germany to deliver two Patriot systems to Ukraine in deal with US [https://www.reuters.com/world/europe/germany-deliver-two-patriot-systems-ukraine-deal-with-us-2025-08-01/][3] Future of European defence - European Commission [https://commission.europa.eu/topics/defence/future-european-defence_en][4] Heritage Foundation: Europe [https://www.heritage.org/military-strength/assessing-the-global-operating-environment/europe][5] $1.2 billion Raytheon contract doubles up on German Patriot missile system [https://www.aztechcouncil.org/raytheon-constract-german-patriot-missile-system/]