Introduction
European defence stocks have been on a strong upward trajectory, driving markets across the region to near-record highs. This surge comes amid rising geopolitical tensions and increased military spending as governments prioritise budgets to enhance national security.
The ongoing war in Ukraine, heightened concerns over global conflicts, and NATO’s commitment to strengthening European capabilities have fueled demand for military equipment and technology.
Companies like BAE Systems, Rheinmetall, and Leonardo—key players in the sector—have seen their share prices climb significantly as investors look for stable, government-backed industries in uncertain times. With billions in new contracts being signed and European leaders pledging sustained investment in military infrastructure, defence stocks have become an increasingly attractive asset class.
The information provided on this page and throughout the website is for general information purposes only and does not constitute financial advice. It is important that you conduct your own research and consider your own personal circumstances before making any investment decisions.
For UK investors, this raises an important question:
“Is now the right time to invest in these stocks?”
In this article, we’ll explore what’s causing this surge, the biggest stocks to consider watching, and how to gain exposure to this booming sector through online investment platforms.
Why Are European Defence Stocks Rising?
The significant surge is driven by a combination of geopolitical uncertainty, increased government spending, and robust corporate growth within the sector.
Geopolitical Uncertainty and NATO Expansion
The ongoing Russia-Ukraine conflict has heightened security concerns across Europe, prompting nations to bolster their defence capabilities. Recent developments, such as the contentious meeting between U.S.Â
President Donald Trump and Ukrainian President Volodymyr Zelensky, have further underscored the need for European nations to take greater responsibility for their own security. This geopolitical climate has led to increased investments in the sector.
Government Spending on Defence
In response to escalating tensions, European governments are significantly increasing their budgets. Germany, for instance, is considering a substantial boost to its military spending, with proposals for a European rearmament bank to support these initiatives.
Similarly, the UK and France have committed to enhancing their expenditures. This surge in government spending is creating lucrative opportunities for defence contractors across the continent.
Corporate Growth and Multi-Billion Contracts
Major European companies in the sector are capitalizing on this favourable environment by securing substantial contracts and experiencing remarkable stock performance.
For example, Germany’s Rheinmetall has seen its stock price soar by over 800% since the onset of the Ukraine conflict three years ago, reflecting its pivotal role in supplying military equipment. Similarly, the UK’s BAE Systems has benefited from increased defence budgets, strengthening its major submarine and frigate programs.
These factors collectively contribute to the increased performance of war-fueled stocks, potentially positioning them as a focal point for investors seeking opportunities in this rapidly evolving geopolitical landscape.
Top Defence Stocks in Europe
The sector has seen remarkable growth, with several companies standing out due to their significant contributions and robust financial performances.
Here are some of the top stocks from the sector in Europe:
As the UK’s largest defence contractor, BAE Systems has experienced substantial growth, driven by increased government spending and a strong order book. The company’s diverse portfolio includes advanced systems, cyber intelligence, and naval platforms, positioning it well to benefit from heightened budgets across Europe.
Rheinmetall specializes in automotive and defence technologies, with a focus on military vehicles, weapons, and ammunition. The company has secured significant contracts, including supplying armoured vehicles and munitions to various European armies, reflecting its strong market position.
Leonardo is a key player in the aerospace and security sectors, offering products ranging from helicopters to military electronics. The company’s extensive portfolio and strategic partnerships have solidified its position in the European market.
Thales provides advanced technologies also focused on aerospace and security applications. The company’s expertise in cybersecurity, radars, and communication systems makes it a supplier of critical value.Â
Saab offers a wide range of defence and security solutions, including fighter aircraft, submarines, and surveillance systems. The company’s innovative products and strategic focus on emerging needs have contributed to its strong market presence.Â
A division of Airbus SE, this segment focuses on military aircraft, space systems, and related services. Airbus’s strong engineering capabilities and extensive product range make it a significant player in the industry.
Specializing in sensor technologies for sector-specific applications, Hensoldt’s products are integral to various military platforms, enhancing situational awareness and operational effectiveness.
Investing in these companies offers exposure to Europe’s robust defence sector, which continues to grow amid increasing geopolitical tensions and spending. However, potential investors should consider factors such as government budgets, geopolitical developments, and individual company performance when making investment decisions.
The information provided on this page and throughout the website is for general information purposes only and does not constitute financial advice. It is important that you conduct your own research and consider your own personal circumstances before making any investment decisions.
How Defence Shares Impact European Markets
Stock Market Growth
The recent surge in these stocks has significantly bolstered major stock indices across the continent.
On March 3, 2025, the FTSE 100 reached an all-time high, propelled by substantial gains in defence companies like BAE Systems, which saw its shares jump 17%.
Similarly, Germany’s DAX index experienced notable growth, with defence firms such as Rheinmetall contributing to the upward momentum. France’s CAC 40 also benefited from the rally, reflecting the broader market uplift driven by the sector in question.
Investor Sentiment
- Both institutional and retail investors are increasingly gravitating towards the sector amidst rising geopolitical tensions.
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- The commitment of European leaders to bolster military spending has heightened confidence in the industry, leading to increased investments. This shift indicates a strategic move by investors seeking stability and growth in sectors less susceptible to economic downturns.
Long-Term Outlook
- The sustainability of this rally hinges on ongoing geopolitical developments and government policies. While current indicators suggest continued support for the sector, investors should remain vigilant and consider potential risks associated with geopolitical shifts and policy changes.
 – Note –Â
Stock performances and company standings are subject to change
based on market conditions and geopolitical events.
 – Note –Â
Stock performances and company standings are subject to change based on market conditions and geopolitical events.
How to Invest in Defence Shares as a UK Investor
Investing from the UK is straightforward, with several options available depending on your investment strategy.
Whether you want to invest in individual stocks, ETFs, or thematic funds, there are multiple ways to gain exposure to the booming sector.
Here are the options for UK investors:
Individual Stocks: Direct Exposure to the Big Players
For those looking to invest in specific companies, buying shares in top European firms like BAE Systems, Rheinmetall, Leonardo, and Thales provides direct exposure to the industry’s growth.Â
This approach offers higher potential returns but comes with higher risk, as individual stock prices can fluctuate significantly based on contracts, government spending, and geopolitical events.
ETFs: A Diversified Approach
For a lower-risk, diversified investment, UK investors can choose Aerospace & Defence ETFs, which include multiple companies in the sector.
These funds spread investments across various firms, reducing exposure to individual stock volatility. Some popular ETFs include:
iShares U.S. Aerospace & Defense ETF (ITA)
Tracks U.S. and international stocks.
SPDR S&P Aerospace & Defense ETF (XAR)
Offers exposure to both major contractors and smaller industry players.
VanEck Defense UCITS ETF
A European-focused ETF providing broad exposure to the region’s defence sector.
Thematic Funds: Actively Managed Investments
For investors who prefer professional management, thematic funds focus specifically on the defence and military sector, with fund managers selecting companies based on growth potential, government contracts, and market trends.
These funds can offer active risk management but often come with higher fees compared to ETFs.
Where to Buy Defence Shares?
Choosing the right investment platform is key to accessing defence stocks and ETFs.
Whether you’re looking for commission-free trading, fractional shares, or tax-efficient accounts (ISAs,SIPPs), selecting a trusted broker will help optimise your investment strategy.
Check out our recommended brokers
With multiple ways to invest, UK investors can capitalise on the sector’s growth while managing risk through diversification.
In the next section, we’ll discuss potential risks and considerations.
The information provided on this page and throughout the website is for general information purposes only and does not constitute financial advice. It is important that you conduct your own research and consider your own personal circumstances before making any investment decisions.
Risks and Considerations
While these stocks have surged, investors should weigh several key risks before committing to this sector.
Understanding these risks will help investors make informed decisions and manage exposure wisely.
Conclusion
So, are European defence shares a good investment?
We have seen explosive growth driven by rising geopolitical tensions, increased military spending, and major government contracts.
Companies like BAE Systems, Rheinmetall, and Leonardo have benefited from record-high defence budgets, pushing European stock markets to near all-time highs.
For investors, the sector offers strong growth potential, particularly as NATO commitments and European rearmament efforts continue. However, risks remain—political shifts, regulatory challenges, and ethical concerns may impact long-term performance.
- Market volatility is also a factor, making diversification through ETFs or thematic funds a sensible approach.
If you are looking to invest in the sector, exploring UK brokers that provide access to defence stocks and ETFs is a great first step.
With the right strategy and risk management, investors can capitalise on this growing market while maintaining a balanced portfolio.
