Discovering High-Performing Defense Stocks Beyond the U.S.
For investors seeking opportunities beyond the current artificial intelligence (AI) hype, it is worth exploring the thriving European defense industry. Recent developments within this sector have catalyzed a robust and ongoing trend that shows potential for significant growth. Investors keen on capitalizing on this momentum should consider directing their investments towards this promising trend, as it presents numerous opportunities.
The approaching four-year anniversary of Russia’s invasion of Ukraine in February 2026 significantly impacts the defense landscape in Eastern Europe. This escalation has fundamentally altered the perspectives of various European nations regarding the importance of maintaining and enhancing their military capabilities.
The NATO alliance, which stands as Europe’s principal military coalition, holds a collective commitment to defend its members in case of an attack. This commitment requires each member nation to allocate a certain percentage of their gross domestic product (GDP) towards defense spending.
Historically, this agreement has been loosely enforced due to Europe’s overreliance on U.S. military support and a prolonged period of relative peace. However, in light of recent events, defense spending among NATO’s 32 member countries is projected to increase significantly, with some nations targeting up to 5% of their GDP. The ongoing conflict in Ukraine is a primary catalyst for this surge in defense expenditures across Europe.
Here are three compelling defense stocks that are poised for substantial growth in the coming years.
Image source: Getty Images.
Investing in Rheinmetall: Europe’s Defense Leader
Rheinmetall (RNMBY 0.37%) (RNMB.F 0.39%) stands as a prominent player in Germany, Europe’s largest economy with a GDP of $2.5 trillion. The impact of the ongoing Ukraine conflict has significantly enhanced Rheinmetall’s market position, with its stock value surging more than 12-fold since the onset of the invasion. Analysts anticipate that Rheinmetall will achieve annual sales growth exceeding 30% over the next couple of years, while earnings are expected to soar by around 50% within this same timeframe.
Today’s Change
(-0.37%) $-1.34
Current Price
$362.67
Key Data Points
Market Cap
$84B
Day’s Range
$362.00 – $365.04
52wk Range
$122.64 – $468.90
Volume
54K
Avg Vol
59K
Gross Margin
22.81%
Dividend Yield
0.49%
Rheinmetall has emerged as the largest defense contractor in Europe, boasting a market capitalization of $81.5 trillion. With Germany increasing its public spending to bolster its economy—particularly as it navigates challenges related to exports of vehicles and machinery—there are substantial opportunities for continued growth. The nation’s proximity to Russia and its commitment to raising NATO spending targets also provide favorable conditions for Rheinmetall’s upward trajectory.
However, investors should note that Rheinmetall’s current valuation presents a challenge. The forward price-to-earnings ratio stands at a high 39, considerably above the European defense sector average of 28. This suggests that the market has factored in expectations for sustained growth. Despite this, with strong growth projections and the stock currently trading 24% below its recent peak, it remains a compelling investment choice.
Exploring Growth Potential with Kongsberg Gruppen
In Northern Europe, Kongsberg (KBGG.Y +3.92%) (NSKFF +3.02%) serves as Norway’s national defense champion. The company has experienced rapid growth in response to the Ukraine crisis and is projected to achieve sales growth in the mid-teens over the next few years. Kongsberg specializes in drones, missile systems, and air defense technologies, including a recent deployment of a system in Poland, a country that shares a border with Belarus, an ally of Russia.
Today’s Change
(3.92%) $0.50
Current Price
$13.24
Key Data Points
Market Cap
$22B
Day’s Range
$12.41 – $13.24
52wk Range
$9.69 – $88.85
Volume
118K
Avg Vol
36K
Gross Margin
17.20%
Dividend Yield
0.77%
Kongsberg is set to spin off its slower-growing maritime division in April 2026, leaving behind a focused entity that is likely to grow over 20% annually. This strategic move could enhance its growth potential significantly.
With a forward price-to-earnings ratio of 28, Kongsberg is aligned with the broader European defense sector. Its market capitalization of $21 billion is notably lower than the industry average, indicating a greater potential for growth from its currently smaller base.
Investing in BAE Systems: A Stable Choice
BAE Systems (BAES.F 0.08%) (BAES.Y +0.21%) is a leading defense contractor based in the United Kingdom. With an expected annual sales growth of around 7% over the next two years, BAE’s growth rate is relatively slower compared to the other stocks mentioned. However, its forward price-to-earnings ratio stands at a more reasonable 21, making it an attractive option for conservative investors.
Another advantage of BAE Systems is the stability of its sales, with nearly half of its revenue coming from contracts with the U.S. Department of Defense. This relationship acts as a solid hedge, ensuring that BAE remains well-positioned in the defense sector as transatlantic relations continue to solidify. Notably, BAE is a significant supplier for the F-35 fighter jet, which has generated hundreds of billions of dollars in sales over its lifetime, capturing between 13% and 15% of the work on each aircraft.
Key Insights on European Defense Spending Trends
The reality is that defense spending has become a prominent facet of the European economy, with companies in the sector experiencing substantial growth in sales and displaying reasonable valuations relative to their expected growth trajectories. These firms also generate healthy free cash flow, which serves as a buffer against market volatility, providing downside protection for investors.
