Defense Stocks Surge After EU’s Zelensky Meeting Shock
JPMorgan Boosts European Defense Companies’ Price Targets by 25% Amid Rising Military Budgets
European defense stocks experienced a significant rally as JPMorgan raised price targets for key companies by an average of 25%, driven by escalating defense spending across the continent.
The market surge followed a diplomatic confrontation between President Donald Trump, Vice President J.D. Vance, and Ukrainian President Volodymyr Zelensky. The tense exchange, coupled with growing fears of reduced U.S. security support, spurred European governments to accelerate defense spending commitments.
On Monday, several European defense companies posted double-digit gains. Germany’s Rheinmetall jumped 10.3%, the U.K.’s BAE Systems climbed 14.1%, Italy’s Leonardo advanced 9.1%, France’s Dassault Aviation surged 14.9%, and German radar systems maker Hensoldt soared 19.3%. The Stoxx aerospace and defense index rose by 7%, marking its best day in years.
In Germany, media reports suggest that centrist parties are discussing the creation of two special fiscal funds, totaling at least €200 billion ($208 billion), to bypass constitutional debt limits and bolster defense capabilities. Estimates indicate that Germany may require €400 billion in defense investment and €500 billion in public infrastructure spending.
A summit in London, attended by U.K. Prime Minister Keir Starmer and French President Emmanuel Macron, further reinforced commitments to increased defense spending among European nations. Robin Winkler, Deutsche Bank’s chief German economist, highlighted that the upper range of the proposed German funds could equate to 2% of GDP — similar to the investments made in East Germany following reunification.
JPMorgan analysts predict that by 2026, leading European defense companies — BAE, Thales, Leonardo, and Rheinmetall — could be trading at 20 times earnings, up from the current 16 times. They anticipate NATO’s European members will raise defense spending to at least 2.5% of GDP, with approximately 40% directed towards equipment development, procurement, and maintenance.
“As budgets expand, the proportion allocated to equipment typically rises,” the analysts noted, adding that European defense stocks companies are likely to secure a larger share of contracts.
Despite the positive outlook, the analysts cautioned that immediate revenue and earnings upgrades might be delayed as budget approvals and contract negotiations take time.
