Saab AB: A High-Conviction Play in the AI-Driven Defense Sector

As geopolitical tensions escalate and NATO members commit to unprecedented defense spending, Saab AB (ST:SE:SAB A) stands at the intersection of technological innovation and strategic geopolitical demand. With its aggressive integration of AI into military systems, deep partnerships with leading academic institutions, and a portfolio of high-margin contracts, Saab is not just adapting to the defense sector's transformation—it is actively shaping it. For investors seeking long-term growth in a sector poised for sustained expansion, Saab offers a compelling case.

AI as the New Combat Edge

Saab's “Project Beyond” has positioned the company at the forefront of AI-driven military aviation. The integration of Helsing's Centaur AI agent into the Gripen E fighter jet represents a paradigm shift in aerial combat. During recent flight trials, the AI agent executed Beyond Visual Range (BVR) maneuvers autonomously, adapting to dynamic threats and providing real-time tactical cues to pilots. These tests, conducted without experimental platforms or restricted military ranges, highlight Saab's ability to rapidly deploy cutting-edge AI without compromising operational readiness.

The implications are profound. As modern warfare increasingly relies on speed and adaptability, AI agents like Centaur reduce human workload while enhancing decision-making. This aligns with NATO's 2025 strategic priorities, which emphasize autonomous systems and interoperability. Saab's success in this domain is not theoretical—it is a proven, scalable capability that positions the company to dominate next-generation fighter jet upgrades across allied nations.

NATO's 5% Defense Spending Target: A Tailwind for Saab

The 2025 NATO Summit in The Hague cemented a historic commitment: members pledged to increase defense spending to 5% of GDP by 2035. This 2.5x jump from the previous 2% target translates to a $2.7 trillion annual spending increase across the alliance. For Saab, this means a surge in demand for its modular, interoperable systems.

Saab's product suite is uniquely aligned with NATO's modernization goals. The RBS 70 NG air defense system, for instance, is already in service with NATO allies like Canada and Latvia, offering a scalable solution for countering drones and low-flying threats. Meanwhile, the CB90 Next Generation combat boats, equipped with CBRN protection and remote weapon systems, address the multi-domain warfare demands of hybrid threats. These systems are not just weapons—they are platforms for recurring revenue, with Saab securing long-term support contracts that lock in cash flows.

High-Margin Contracts and Recurring Revenue

Saab's Q2 2025 results underscore its ability to convert geopolitical tailwinds into financial outperformance. The company reported a 30.4% year-over-year revenue increase to SEK 19.8 billion, with an EBITDA margin of 14.3%—a 120-basis-point improvement from 2024. This margin expansion is driven by its recurring revenue model, exemplified by the $2.9 billion Gripen E support contract with Sweden and the $2.9 billion Denmark Combat Training Centre (CTC) framework. These agreements provide predictable cash flows and deepen customer relationships, reducing the volatility typically associated with defense procurement cycles.

Moreover, Saab's order backlog of $189 billion (74% international) ensures visibility into future earnings. The company's focus on high-margin systems—such as AI-enhanced command-and-control platforms and CBRN protection—further insulates it from commodity-like pricing pressures. With Sweden's NATO membership (finalized in 2024) driving domestic defense spending toward the 2% GDP target, Saab is benefiting from both local and global demand.

Strategic Collaborations and Talent Pipelines

Saab's partnerships with U.S. universities—Purdue, MIT, UC San Diego, and others—underscore its commitment to staying ahead of technological curves. These collaborations, funded through $22.5 million in government-backed CRADAs, focus on AI, autonomy, and ethical AI frameworks. For example, Saab and MIT are pioneering “responsible AI” for autonomous systems, while its work with Purdue on multidomain autonomy positions the company to lead in cross-domain integration.

These partnerships are not just R&D investments; they are talent pipelines. Saab funds 50+ graduate students annually and actively recruits from these institutions, ensuring a steady influx of innovation. This “Triple Helix” model (industry, academia, government) mirrors the strategies of Silicon Valley's most successful firms, blending agility with institutional rigor.

Valuation and Investment Case

Despite its robust growth, Saab remains undervalued relative to its peers. At a forward P/E of 18x, the company trades below the defense sector average of 22x, reflecting its conservative revenue recognition and the market's underappreciation of its AI-driven moat. The recent 15.8% profit beat in Q2 2025 and the upgraded 2025 guidance (16–20% organic sales growth) suggest further upside.

For long-term investors, Saab offers a rare combination of:
1. Geopolitical tailwinds (NATO's 5% target).
2. Technological leadership (AI integration, recurring revenue models).
3. Financial discipline (14.3% EBITDA margin, $189 billion backlog).

The risks are minimal given Saab's diversified international presence (74% of its backlog is overseas) and its focus on high-demand sectors like CBRN and AI. With defense budgets locked in for the next decade and AI reshaping warfare, Saab is not just a beneficiary of the current environment—it is a catalyst.

Conclusion
In a world of escalating tensions and AI-driven military innovation, Saab AB is the rare investment that combines strategic foresight with operational execution. For those seeking exposure to the defense sector's next phase of growth, Saab's stock represents a high-conviction opportunity. The question is not whether the defense industry will expand—it will. The question is whether investors will position themselves with companies like Saab, which are not only riding the wave but leading it.