The United States has taken a hostile stance toward Ukraine and hinted at the possibility of reducing the number of U.S. troops stationed in Europe, leading to expectations that the European defense industry will experience a prolonged uptrend. This is due to the fact that once the war between Russia and Ukraine concludes, Europe will need to guarantee Ukraine's security, and Europe will have to be responsible for its own security without U.S. troops in the immediate term.
Following the faltering White House meeting between U.S. President Donald Trump and Ukrainian President Volodymyr Zelensky, European leaders came together on the 2nd (local time) for an informal summit at Lancaster House in London, presided over by British Prime Minister Keir Starmer, to unite their voices on strengthening defense in Ukraine and Europe.
After the summit, Ursula von der Leyen, President of the European Commission, met with reporters in Brussels on the 3rd and stated that the 27 EU member states will announce a European financial plan on the 4th, saying, "There is no doubt that a tremendous increase in defense expenditure is necessary," and emphasized, "The lasting peace we desire can only be built through strength, and strength begins with enhancing ourselves."
Denmark and the United Kingdom have already announced that they will increase defense expenditure, and according to NATO Secretary General Jens Stoltenberg, other NATO member countries are also expected to follow suit. Earlier, Reuters reported that "parties likely to form Germany's next government are considering establishing special funds related to defense and infrastructure, and defense expenditure could reach 400 billion euros."
The market also predominantly anticipates an increase in European defense expenditure. Vincent Juvins, global market strategist at JPMorgan Asset Management, noted to Bloomberg, "Even if there is a possibility of peace in Ukraine by 2025, public defense expenditure will sharply increase in the coming years."
Saima Hussein, an analyst at AlphaValue, told The Wall Street Journal (WSJ), "European defense budgets could rise by 150 billion euros," and "there could be a surge in demand for weapons and ammunition." He added, "The defense industry has entered a bullish cycle," stating, "More than just a simple rally, the European defense industry is on the brink of growth, and investors are sensing long-term profits and moving early." Jamie Murray, an analyst at Shore Capital Markets, also sees the defense industry boom continuing at least until 2030.
Earlier, French President Emmanuel Macron proposed that European countries raise defense expenditure to 3-3.5% of their gross domestic product (GDP). Ben Hilgen of BofA Global Research noted that if Europe raises defense expenditure to around 3% of GDP, defense-related stock prices are expected to rise by the early 2030s.
In fact, stocks of 12 European defense companies, including Babcock International, BAE Systems, Rheinmetall, and Thales, rose more than 10% on that day alone. Among them, Rheinmetall, the largest supplier of land weapons in Europe, has seen its stock price rise by more than 90% this year alone. Calculating over the three years since Russia's invasion of Ukraine, Rheinmetall's stock price has risen more than 11 times.