Why Rheinmetall AG Outpaces Leonardo DRS in the Defense Sector

The European defense sector has become a battleground for companies vying to capitalize on a historic surge in military spending, driven by geopolitical tensions and the need for modernization. Among the contenders, Rheinmetall AG and Leonardo DRS stand out, but one has clearly outpaced the other in recent years. Rheinmetall's share price soared by 228% in a single year, dwarfing Leonardo DRS' 10.8% growth during the same period. This divergence reflects starkly different strategies, financial trajectories, and alignment with the shifting dynamics of the European defense landscape.

Geopolitical Tailwinds and Financial Outperformance

Rheinmetall's meteoric rise is inextricably linked to Germany's unprecedented commitment to bolstering its defense capabilities. The country has pledged to increase defense spending by 650 billion euros over the next five years, creating a fertile ground for domestic champions like Rheinmetall. This spending surge has translated into billions of euros in orders for the company, spanning armored vehicles, ammunition, anti-drone systems, and even forays into naval shipbuilding and satellite-intelligence capabilities. By 2025, Rheinmetall's revenue is projected to grow at a compound annual rate of 30% since 2023, a pace that dwarfs Leonardo DRS' five-year revenue CAGR of 5% and diluted earnings-per-share growth of 14%.

Leonardo DRS, while posting robust third-quarter 2025 results-$960 million in revenue (up 18% year-over-year) and $72 million in net earnings (up 26%)-has struggled to match Rheinmetall's momentum. Its growth, though steady, is more insulated from the European defense boom. The company's core markets remain the U.S. and its allies, with critical contracts for systems like the M1 Abrams tank and Apache helicopter. While Leonardo DRS has expanded its European footprint through partnerships, such as its collaboration with KNDS to offer the CAESAR® Self-Propelled Howitzer to the U.S. Army, its exposure to the European defense surge remains limited compared to Rheinmetall's.

Strategic Diversification and Market Positioning

Rheinmetall's aggressive diversification into cutting-edge systems has further cemented its leadership. The company has pivoted toward next-generation technologies, including loitering munitions and advanced naval platforms, positioning itself at the forefront of a sector increasingly defined by innovation. This strategy aligns with European nations' urgent need for interoperable, high-tech solutions to counter hybrid threats and drone warfare.

Leonardo DRS, meanwhile, has focused on niche but critical areas such as battle management systems (BMS) and counter-unmanned aircraft systems (C-UAS). At LandEuro 2025, the company highlighted its BMS capabilities for Polish and Romanian Abrams tanks under the U.S. Foreign Military Sales (FMS) program, with the Romanian contract awarded in December 2024 and the Polish project nearing completion. While these contracts underscore Leonardo DRS's technical expertise, they also reveal a dependency on U.S.-led programs and foreign military sales, which may limit its ability to fully capitalize on the European defense boom.

The European Defense Spending Surge: A Double-Edged Sword

The European defense market's rapid expansion has been a double-edged sword for Leonardo DRS. While the company has secured a record backlog of $8.9 billion as of Q3 2025, its European contracts remain relatively modest compared to Rheinmetall's. For instance, Rheinmetall's order book includes large-scale projects for Germany's Army 2030 modernization plan, which prioritizes next-generation combat vehicles and air defense systems. In contrast, Leonardo DRS's European engagements, such as its BMS integration for Taiwanese Abrams tanks, are more fragmented and reliant on third-party procurement channels.

This disparity highlights a broader trend: European nations are increasingly favoring domestic champions to ensure strategic autonomy. Rheinmetall's deep ties to the German government and its ability to deliver end-to-end solutions-from artillery to cyber defense-have made it the preferred partner for countries seeking to reduce reliance on U.S. suppliers. Leonardo DRS, despite its global reach, faces an uphill battle in a market where local content and political alignment are paramount.

Conclusion: A Tale of Two Strategies

Rheinmetall AG's outperformance over Leonardo DRS is not a coincidence but a reflection of its superior alignment with the geopolitical and financial currents reshaping the European defense sector. By leveraging Germany's historic spending commitments, diversifying into high-growth technologies, and securing large-scale domestic contracts, Rheinmetall has positioned itself as a dominant force in a market poised for sustained expansion. Leonardo DRS, while a capable player, remains more tethered to U.S. defense programs and niche markets, limiting its ability to replicate Rheinmetall's explosive growth. For investors, the lesson is clear: in the new era of European defense, proximity to national priorities and technological agility will determine who leads-and who lags.