Europe's Defense Revolution: This Winner Can Rally 30% More After Tremendous Run
The EU just did something it never dared to do before—cut U.S., UK, and Turkish arms companies out of its defense spending
This isn’t just a budget shift; it’s a power shift. Defense companies from U.S., UK, and Turkey will not receive money from a new €150bn EU defense fund unless they sign a security agreement with Brussels. This marks a significant shift towards self-reliance—something the EU has never attempted at this scale before.
Additionally, the EU will exclude weapons systems that require third-country authorization for use. This restriction effectively excludes systems like the Patriot missile defense system, which require U.S. approval for deployment. Moreover, concerns about the so-called "kill switch" function in the F-35—which some European officials fear could allow Lockheed Martin to limit aircraft functionality—have fueled the push for European alternatives. While there is no confirmed evidence of such a feature, the EU’s decision suggests it is unwilling to take that risk.
Winners: European Defense Firms Take the Lead
With concerns over Trump’s unpredictable policies, European nations no longer want to risk being suddenly restricted from using critical defense systems. This is great news for Dassault Aviation, the French manufacturer of the Rafale fighter jet, as well as for the SAMP/T air defense system, which is set to replace the Patriot system in Europe.
Companies set to benefit include:
Dassault Aviation (France) – Rafale jets gain strategic importance.
Thales Group (France) – Major role in European defense electronics.
Leonardo (Italy) – Expanding its air defense and military technology footprint.
MBDA (France, Italy, UK) – European missile systems gain priority over U.S. alternatives.
Billions lost and found
Billions in Lost Revenue for U.S. Defense Companies – European orders have historically been a major revenue stream for Lockheed Martin, RTX (formerly Raytheon), and Boeing. While RTX stock gained 2%, Lockheed Martin remained flat, and the XAR defense ETF rose 2.1%—primarily due to broader market support from the Federal Reserve, rather than defense-specific gains., signaling that markets are still weighing the long-term impact.
Potential Bargaining Tool in Trade Negotiations – While Trump has signaled cutbacks in U.S. defense spending, the EU’s push for defense autonomy is happening precisely because of Washington’s inconsistency. If NATO weakens further, the transatlantic alliance could become a hollow structure, with Europe forging its own independent security policy.
The Rise of a European Defense Industry – With more EU money flowing into local defense projects, new companies will emerge, research will accelerate, and innovation will follow. Germany and France—the two pillars of the EU—are positioning themselves as the main beneficiaries of this historic shift.
Final Takeaway
This move is Europe’s biggest military shift in decades. It’s not just about money—it’s about security independence, political leverage, and breaking free from Washington’s influence. This is more than just defense contracts—it’s Europe making sure that if NATO weakens, it won’t be left vulnerable. For investors, the message is clear: the biggest defense shift in decades is happening, and the money is staying in Europe.
Stocks on the Move
1. Rheinmetall (Germany) - Explosive growth 30%
Hauck Aufhäuser Investment Banking has nearly doubled its price target for Rheinmetall from €920 to €1800, maintaining a 'Buy' rating. Analyst Simon Keller describes the company as being on the verge of 'explosive growth,' with recent earnings calls suggesting an even higher trajectory than previously expected. Long-term revenue and margin expectations have been revised upward.
Upside Potential: +30% from current price €1380
2. RENK Group AG (Germany) – Strong Demand
Hauck Aufhäuser Investment Banking has raised its price target for RENK from €35.50 to €55, maintaining a 'Buy' rating. Analyst Marie-Therese Grübner responded to discussions with management, highlighting growth opportunities tied to rising defense budgets across European NATO members.
Upside Potential: +25% from current price €44
3. Hensoldt (Germany) – Caution
Jefferies has initiated coverage on Hensoldt with an 'Underperform' rating and a price target of €55. Analyst Chloe Lemarie acknowledges the European defense spending surge but sees Hensoldt as the weakest player due to valuation concerns and potential disappointments in key defense programs, particularly the Eurofighter and Germany’s ESSI air defense initiative.
Current Price: €71 – Potential downside risk
🔔 Want to stay ahead of the biggest shifts in global defense investing? Subscribe now and get exclusive deep dives before the market catches on.
📌 Next up: Is Europe’s AI push following the same self-reliance strategy? Nvidia and U.S. chipmakers might not like what’s coming.
This publication is for educational and informational purposes only and does not constitute financial, investment, or trading advice. Readers are solely responsible for their own investment decisions. The author may hold positions in the securities mentioned.