Saab's Accelerated Growth in the European Defence Sector: Strategic Positioning and Financial Momentum in a High-Demand Era

The European defense sector is undergoing a seismic shift. With defense budgets projected to grow at an annual rate of 6.1% through 2035—far outpacing the U.S., Russia, and China—companies like Saab AB (STO:SAAB-B.ST) are poised to capitalize on a market driven by geopolitical urgency. For investors, Saab's strategic alignment with European defense modernization, coupled with its financial resilience and innovation-driven business model, presents a compelling case for long-term growth.

Strategic Positioning: Sovereignty, Innovation, and Global Expansion

Saab's recent $2.1 billion RBS 70 NG air defense contract with Latvia and $1.7 billion TAURUS missile deal with Germany underscore its role as a key supplier of off-the-shelf systems to address immediate operational needs. These contracts align with a broader European trend of prioritizing rapid deployment of modular, adaptable equipment over long-lead procurement.

The company's June 2025 landmark deal with France—procuring two GlobalEye AEW&C aircraft, with options for two more—is a strategic milestone. By avoiding U.S. hardware and partnering with French maintenance provider Sabena technics, Saab is helping European nations reduce reliance on U.S.-centric systems. This aligns with the EU's Readiness 2030 initiative, which aims to cut defense import dependency from the U.S. (currently 64%) and boost sovereign capabilities.

Saab is also expanding its production footprint to ensure supply chain resilience. New facilities in Finland, India, and the U.S. (e.g., a Carl-Gustaf production site in India and a Grayling, Michigan plant) reflect its strategy to localize manufacturing and mitigate geopolitical risks. These moves not only reduce exposure to trade tensions but also position Saab to capture growth in emerging markets.

Financial Momentum: Record Sales, Margins, and Backlog

Saab's Q2 2025 results highlight its financial strength. The company reported 32% organic sales growth (SEK 19.8 billion) and a 14.3% EBITDA margin (SEK 2.83 billion), outperforming its previous guidance of 12–16% growth. EBIT surged 49% to SEK 1.98 billion, with a 10.0% margin, driven by strong demand in the Dynamics and Surveillance business areas.

The order backlog has grown to SEK 189.2 billion (as of Q1 2025), with 74% attributed to international customers. This backlog, combined with Saab's focus on recurring revenue models (e.g., the Denmark Combat Training Centre and Sweden's Gripen E support contract), provides a stable cash flow runway.

Innovation as a Growth Engine

Saab's investment in AI, autonomy, and software-defined systems positions it to lead in next-generation defense technologies. The company's swarming drone program for the Swedish army—transitioning from concept to deployment in under a year—demonstrates its agility. Collaborations with defense start-ups further accelerate innovation, bridging the gap between legacy systems and emerging tech.

The Gripen E's modular design and open architecture allow rapid integration of AI-driven targeting systems and hypersonic capabilities, aligning with NATO's joint interoperability goals. Meanwhile, Saab's EXCON training software is gaining traction in the global military simulation market, projected to grow at 6.5% annually through 2030.

Risks and Mitigation

While Saab's trajectory is strong, risks persist:
1. Production Scalability: Ramping up GlobalEye production to four aircraft annually by 2030 depends on seamless partnerships and supply chain management.
2. Geopolitical Shifts: A de-escalation of conflicts or political shifts could dampen defense spending.
3. Trade Tensions: Tariffs or U.S. policy changes could impact Saab's U.S. operations.

However, Saab's diversified production footprint, recurring revenue model, and focus on high-growth segments (e.g., AI, cyber defenses) mitigate these risks. The company's ESG targets, including a 42% emissions reduction by 2030, also align with investor priorities.

Investment Outlook: A High-Conviction Play

Saab's current valuation (18x 2025E P/E) is below the sector average (22x), offering a compelling risk-rebalance. With a 16–20% organic sales growth guidance for 2025 and a SEK 189.2 billion order backlog, the company is well-positioned to outperform as European defense spending accelerates.

For investors, Saab represents a rare combination of strategic relevance (defense autonomy), financial discipline (14.3% EBITDA margin), and technological leadership. The company's ability to pivot from one-off capital expenditures to recurring revenue models further enhances its appeal.

Conclusion: In a world where defense budgets are no longer a luxury but a necessity, Saab is a standout growth story. Its alignment with European sovereignty goals, robust financials, and innovation-driven strategy make it a high-conviction investment for those seeking exposure to the defense sector's long-term tailwinds.