Saab AB: A High-Conviction Play in the Geopolitical-Driven Defense Boom

The global defense sector is undergoing a seismic shift. As NATO's historic 5% GDP defense spending pledge and escalating geopolitical tensions fuel a $2.7 trillion annual surge in military budgets, companies like Saab AB (STO:SAAB-B.ST) are positioned to thrive. With a diversified portfolio of cutting-edge systems, a robust order intake, and a strategic focus on capacity expansion and R&D, Saab is not just riding the wave—it's shaping it. For investors seeking exposure to a high-growth defense industrial play, the time to act is now.

Geopolitical Tailwinds: The Catalyst for Saab's Growth

The 2025 NATO Summit in The Hague marked a turning point. By committing to increase defense spending to 5% of GDP by 2035, member states have unlocked a decade-long spending boom. This pledge, combined with Russia's invasion of Ukraine and China's assertive posturing in the Indo-Pacific, has pushed defense modernization to the forefront of global policy.

Saab is uniquely positioned to capitalize on this environment. Its RBS 70 NG air defense system, already combat-proven in Ukraine, has secured contracts with Sweden (SEK 1.5 billion) and Latvia (SEK 2.1 billion). These systems, capable of engaging drones, aircraft, and missiles at 9 km, align perfectly with NATO's urgent need for scalable, interoperable solutions. Meanwhile, Saab's Gripen E fighter jet, equipped with AI-driven maneuvering systems, is in talks with Thailand and Colombia, further diversifying its revenue base.

Financial Fortitude: Scaling Margins Amid Surge in Demand

Saab's Q2 2025 results underscore its financial strength. Sales jumped 30.4% year-over-year to SEK 19.8 billion, driven by organic growth of 32%. EBITDA margin expanded to 14.3%, reflecting disciplined cost management and high-margin contracts. The company's order backlog of $189 billion (74% international) ensures visibility into future earnings, with 90% of 2025 sales already secured.

What's more, Saab's strategic investments in recurring revenue models are paying off. The $2.9 billion Gripen E support contract with Sweden and the Denmark Combat Training Centre framework provide stable cash flows, insulating the company from procurement volatility. With a forward P/E of 18x (vs. the defense sector average of 22x), Saab remains undervalued relative to its growth trajectory.

Capacity and Innovation: Building a Next-Gen Defense Industrial Base

To meet surging demand, Saab is aggressively expanding its production footprint. A new munitions facility in Grayling, Michigan, and expanded operations in West Lafayette, Indiana, are scaling output for precision fire systems and U.S. Air Force training programs. In Finland, automation is accelerating delivery of systems like the Sirius Compact electronic warfare sensor, reducing costs and lead times.

R&D investments are equally transformative. Saab's 2025 R&D spending of $266 million (up 33% from 2023) is fueling breakthroughs in AI, autonomous systems, and CBRN protection. Notably, its Skapa initiative in San Diego is developing AI-driven command platforms, while partnerships with MIT and Purdue are advancing ethical AI frameworks for autonomous warfare. These innovations not only enhance product differentiation but also lock in long-term contracts with tech-savvy militaries.

Why Now Is the Optimal Time to Invest

The convergence of geopolitical tensions, NATO's spending pledge, and Saab's strategic execution creates a compelling investment thesis. Here's why:
1. Defensive Growth: With 74% of its order backlog international, Saab is insulated from regional volatility.
2. Margin Expansion: High-margin, recurring revenue models and cost discipline are driving EBITDA growth above sales.
3. AI Leadership: Saab's integration of Helsing's Centaur AI into the Gripen E positions it as a pioneer in next-gen military tech.
4. Valuation Attractiveness: A forward P/E of 18x and a 131% YTD stock price surge suggest significant upside.

Conclusion: A Defense Sector Bellwether

Saab AB is more than a beneficiary of the current defense boom—it's a catalyst. By aligning its product suite with NATO's modernization goals, expanding its global production network, and leading in AI-driven innovation, Saab is building a durable competitive moat. With defense budgets locked in for the next decade and geopolitical risks rising, the company's long-term growth is not just probable—it's inevitable.

For investors seeking a high-conviction, high-growth play in the defense sector, Saab offers a compelling combination of strategic foresight, financial discipline, and technological leadership. The time to invest is now.