EU Defense Spending Surge: Identifying the Winners in Transatlantic Military Demand

The European Union's defense spending is undergoing a historic transformation. With a €800 billion rearmament plan (Defence Readiness 2030) and a €150 billion loan fund to boost procurement, the EU aims to close critical capability gaps exposed by its reliance on U.S. defense systems. This shift has created a goldmine of opportunities for defense contractors capable of addressing shortages in tanks, air defense, missile systems, AI/cyber, and R&D. Here's how to identify the winners.

1. Main Battle Tanks: Rheinmetall and BAE Systems Lead the Charge

The EU's tank inventory shortfall (1,627 vs. a projected need of 2,359–2,920 by 2030) is a key priority. German giant Rheinmetall is well-positioned with its Panther KF51, a 130mm smoothbore tank designed to rival U.S. models. Its stock (RHE.DE) has surged 200% year-to-date (2025), reflecting strong demand for modernization.

UK-based BAE Systems (BA.L) also benefits through its M109 Paladin howitzers and M2/M3 Bradleys, which form the backbone of NATO's land forces. BAE's inclusion in the Global X Defense Tech ETF (SHLD) signals its role as a transatlantic partner.

2. Air Defense Systems: Leonardo and Crown Cyber Defence Dominate

The EU's air defense shortfall—just 35 units in 2024 versus a needed 89—is being addressed by firms like Leonardo (MIL.MI), whose LIONFISH 30 and RAT 31 DL radar systems offer layered protection. Meanwhile, Crown Cyber Defence (Finland) is pioneering AI-driven counter-drone systems like ISQU C-UAS, which integrate with NATO's command networks.

3. Missile Technology: Baykar and Anduril's Hypersonic Edge

Turkey's Baykar Technologies (owner of the Bayraktar TB2 drone) is a disruptor in missile systems, offering the Kemankeş mini-cruise missile. U.S.-based Anduril Industries, valued at $30.5 billion post a $2.5B funding round, is leading with its Barracuda-250 hypersonic missile, which leverages single-flow manufacturing to cut costs.

4. AI/Cyber Defense: Harmattan and Shield AI's Data-Driven Solutions

France's Harmattan AI and U.S. firm Shield AI are pioneers in AI-driven systems. Harmattan's Gobi Interceptor neutralizes drones via autonomous hit-to-kill tech, while Shield's Hivemind enables GPS-independent drone swarms. Both benefit from the EU's push for sovereign AI capabilities.

5. R&D: Airbus and BAE's Technological Arms Race

The EU's defense R&D spending lags behind the U.S. ($129B vs. €13B in 2023), but companies like Airbus (AIR.PA) and BAE are bridging gaps. Airbus' focus on hypersonic systems and autonomous drones (e.g., Eurodrone) positions it as a leader in next-gen tech, while BAE's AI integration in platforms like the Eurofighter Typhoon ensures interoperability with U.S. systems.

Transatlantic Partnerships: Navigating the “Buy European” Quagmire

The EU's “Buy European” policies (requiring 40–70% of procurement costs to originate within the EU or Ukraine) have forced U.S. firms to adapt. Raytheon (RTN) partners with Norway's Kongsberg on NASAMS air defense, while Honeywell (HON) acquired Italy's Civitanavi Systems to localize production. These strategies align with EU sovereignty demands while preserving U.S. tech dominance.

Investment Outlook: Prioritize Localization and R&D Exposure

• Rheinmetall (RHE.DE): A top pick for tank modernization and strong EU ties.
• Leonardo (MIL.MI): Air defense and radar systems are core to NATO's defense architecture.
• Shield AI (US): A private darling in autonomous drones; watch for an IPO or acquisition.
• Palantir (PLTR): Its AI-driven situational awareness tools surged 70% in 2025, reflecting demand for data-driven defense.

Risks: Overreliance on U.S. tech could backfire if EU pushes for full self-sufficiency. Investors should favor firms with local partnerships and R&D pipelines in hypersonic/quantum tech.

Conclusion

The EU's defense renaissance is a once-in-a-generation opportunity for contractors bridging capability gaps. Firms like Rheinmetall, Leonardo, and Anduril are not just suppliers—they're architects of Europe's strategic autonomy. As transatlantic ties evolve, investors must prioritize agility, localization, and innovation to profit from this seismic shift.