Defence sector spending as a percentage of GDP has risen steadily in key economies over the past decade, with governments allocating larger budgets toward modernising military capabilities and acquiring advanced weapons systems. But the sector as a whole, especially in Europe, is looking at its biggest injection of new money since the end of the Cold War.
In this guide to investing in the Defence Sector, you will learn about the following:
How do we define the defence sector?
The defence sector encompasses industries involved in the production of military equipment, technology, and services essential to national security. This includes aerospace companies, manufacturers of military aircraft, drones, and related technologies. It also covers security firms that provide physical security solutions, surveillance systems, and protective services. Additionally, the sector includes cybersecurity companies specializing in safeguarding digital infrastructure from cyber threats, an increasingly critical component of modern defence strategies.
European Defence Stocks: Spending Boom, IPOs & Where Growth Is Coming From
Can European defence companies benefit from global instability?
Trump’s return to the White House has significantly compounded Europe’s security challenges. He has consistently advocated for increased defence spending by European nations, a stance he held during his first term beginning in 2016, and again in 2025. His administration’s “America First” policies, along with renewed calls for NATO allies to boost military expenditures, have prompted European governments to reassess their defence strategies.
This reassessment has led to a surge in defence budgets across Europe. Countries are now investing heavily in military capabilities to enhance self-reliance, including ramping up support for domestic defence industries. The goal is to reduce dependence on foreign military equipment and stimulate homegrown innovation.
Concerns also grew earlier in 2025 when the U.S. signaled a shift toward direct negotiations with Russia—potentially excluding Ukraine and sidelining European interests. This development heightened the urgency for a more unified and self-sufficient European defence architecture.
The situation underscores how swiftly geopolitical dynamics can evolve. As the saying goes, sometimes nothing happens for decades, and then decades happen in weeks. The events of early 2025—including Trump’s attempted peace deal, Europe’s intensified defense spending, and the introduction of budgetary carve-outs—illustrate this phenomenon.
European defence company valuations
Europe’s urgent response to current geopolitical conditions has clearly benefited defence companies. There has been a rerating of valuation multiples, with notable price performance improvements over the past six months. However, there are certain aspects that may remain underappreciated in current market valuations.
The average book-to-bill ratio, a forward-looking metric that compares incoming orders to completed sales stood at approximately 1.4 in 2024, up from 1.1 in 2022. This suggests that new orders are outpacing deliveries, setting the stage for strong revenue growth in the years ahead. For instance, Rheinmetall’s book-to-bill ratio is around 1.8, reflecting a substantial surplus of orders relative to existing sales. These figures suggest a robust pipeline of future revenue for European defense companies.
Another important consideration is the structural nature of the defence sector, which relies heavily on long-term contracts. This results in a delayed realisation of earnings growth. As older backlogs are gradually converted into revenue, profitability is expected to scale up over the next several years. This could drive earnings growth and, in turn, reduce price-to-earnings ratios. A trend that has yet to be fully reflected in current pricing.
Several European defence firms have conducted scenario analyses suggesting that NATO’s current guideline of 2% defense spending as a percentage of GDP could be raised to 2.5%, 3%, or even 3.5%.
If such an increase materializes, significantly higher European defence spending is likely to follow.
Areas of underinvestment within the European defence sector?
A notable study conducted by the European Defence Agency shows that Europe has historically underinvested in its core defence products during times of peace. The analysis outlined a straightforward, three-pronged framework that highlights the areas of neglect.
The first area involves the replenishment of stockpiles, including arms and ammunition. The second pertains to updating Cold War-era legacy systems that are still in use by EU armed forces. The third focuses on restoring the multilayer air and missile defence system. These three areas, according to the European Defence Agency, have suffered from chronic underinvestment due to a complacent stance taken during more peaceful periods.
As capital begins to flow back into the European defence sector, it is expected that the early phase of this multi-year investment cycle will concentrate heavily on these three critical areas. These segments are likely to receive the most significant share of the renewed investment activity.
The US defence sector
European nations are increasingly adopting the view that the United States may no longer be a fully reliable ally. As a result, many are now pursuing greater defence autonomy. While long-standing alliances and technological partnerships may still lead to U.S. companies securing contracts, particularly in areas where they offer unmatched expertise or advanced capabilities, the broader push for local procurement is reshaping the competitive landscape. This shift toward strengthening domestic defence industries is expected to significantly impact the role of U.S. defence contractors in overseas markets.
Additionally, under the current U.S. administration, the implementation of the Defence Offset Guidance for Expenditures has signaled a move to curtail military spending. Data on federal expenditures has revealed a declining share allocated to national defence, with other budget categories beginning to take precedence. Entitlements, Social Security, and interest payments on federal debt, now rising due to U.S. Treasury yields of over 4% on 30-year bonds, are commanding a growing portion of the budget. Interest expenses have increased to 11% of total federal expenditures.
This combination of reduced U.S. military spending and Europe’s drive for defence self-sufficiency is expected to have a meaningful impact on the revenue generation prospects of U.S. defence companies.
Investing in Defence sector stocks & shares
In response to the accelerated push for European defence autonomy, WisdomTree is providing investors with an opportunity to capitalise on the growth potential of European defence stocks via the WisdomTree Europe Defence UCITS ETF (WDEF). By investing across the European defence value chain, the WisdomTree Europe Defence UCITS ETF provides exposure to the 20 leading European defence companies. Companies with strong exposure to land-based systems (ammunition, vehicles) and air defence (missiles, drones) are particularly well-positioned to benefit from increased European military expenditures.
Mapping European defence leaders: companies and their core subsectors
Leading companies in European defence sector, Source: WisdomTree, company websites as of 31 January 2025.
Defence Sector ETFs
Would you like your funds listed here? Contact us
Latest defence sector related reports
Advertisement
Don’t miss out on our weekly newsletter for great tips, ideas and news on the financial markets
More Defence Sector related stories
Top Five Stocks That Will Profit From The Space Boom
This week we take a look at five hot stocks that have a large or growing exposure to the exciting space sector.
WisdomTree blasts off with a new Space Economy ETF
WisdomTree has launched an ETF which will track the growth of leading listed companies involved in the burgeoning space sector.
RC Fornax: Defence contractor seeks escape velocity
Despite operating in a rapidly growing sector, RC Fornax needs to convince investors it has the ability to turn that into solid revenues.
Investing in European Defence: the rearmament cycle is just getting started
Aneeka Gupta outlines why European defence spending is not only increasing, but becoming structurally embedded in government policy
S-Ventures pivots towards defence tech with new fundraising
S-Ventures has raised £300,000 in fresh equity as it pivots further towards defence technology and 'special situations' investments
WisdomTree expands defence playbook with global and Asia funds
WisdomTree has announced the launch of the WisdomTree Asia Defence UCITS ETF and the WisdomTree Global Defence UCITS ETF
Our Top Five Aviation & Defence Stocks To Follow In Q2
This week we take another look at the global aviation and defence sector as the war in the Gulf keeps investors focused on its prospects.
Melrose lifts dividend and launches £175m buyback
Armchair Trader stock tip Melrose Industries has increased its dividend and unveiled a new £175mn share buyback.
Rolls-Royce shares poised for more gains after solid results
Rolls-Royce has capped another year of strong financial and operational momentum, underlining its transformation from pandemic-era casualty.
The 2026 catalysts European defence investors can’t ignore
As defence budgets rise, how effectively can industry converts policy intent into delivered capability?
SpaceX IPO: How much is it really worth and how much will Wall Street ask for?
We take a closer look at the much anticipated SpaceX IPO for our Plus+ members and estimate its true value.
UK Share Tip: This aerospace bet is poised to impress investors in 2026
Strong tailwinds in the aerospace engineering and defence sectors coupled with a good cash flow story should boost shares.
Is Babcock right to be confident on full year outlook?
Armchair Trader stock tip Babcock International Group said it remained confident of meeting full-year expectations.
Top Five Aerospace & Defence Stocks To Watch In 2026
We've got five Aerospace & Defence Stocks that could benefit from increasing geopolitical uncertainty in 2026
Rolls-Royce shares hit record high as aerospace recovery continues
Rolls-Royce stock climbs to fresh peaks alongside the FTSE 100, supported by strong civil aerospace demand and defence spending commitments.
Should you be increasing your allocation to defense stocks in 2026?
The importance of defense stocks within portfolios has changed dramatically since 2022, but the sector has changed as well.
Five headwinds facing the projected SpaceX IPO
SpaceX could be the biggest IPO in history if it lists in 2026 but the stock may bring with it risks for investors and for Tesla shares.
RC Fornax: Record order intake signals momentum to shareholders
RC Fornax has entered its new financial year with the strongest trading performance in its history, a sign of shifts in defence priorities.
Rolls-Royce shares: Is now the time to buy?
Rolls-Royce shares have been under pressure since hitting all time highs in September. We look at whether now is a good entry point to buy
European governments set to shift security and defence focus
From 2025 to 2030, there will be a deliberate shift in defence strategy from short‑term rearmament towards structural, long‑term readiness
Thematic outlook: finding growth in a fragmented world
Fragmentation creates risks but also new areas of opportunity. We outline five growth opportunities for investors
How are investors trading the US government shutdown?
How serious is the current federal government shutdown for investors, and which stock market sectors look likely to suffer most?
Serco’s shares to get a boost from $972m US Air Force training contract?
Serco is set to provide advanced simulator and training support at more than 20 Air Force locations worldwide.
Project Bromo looks good for Airbus investors
What is Project Bromo and how is it boosting the shares of some of Europe's leading defence and aerospace companies?
Defence Holdings launches sovereign AI information warfare platform
The initiative represents the first in a planned portfolio of sovereign AI-enabled applications under the group’s Defence Technologies arm.
Share Tip: A small cap engineering company seeing rapid growth
James's latest share tip is beginning to attract serious investor attention following a series of significant contract wins
The top five Flying Taxi stocks to watch in 2025
Why is the flying taxi sector getting billionaire hedge fund investors so excited, and what are the leading stocks in this space?
Kromek secures £1.7m UK government contract for nuclear detection
The UK-based radiation detection specialist, has secured a £1.7m contract under the UK Government’s Radiological Nuclear Detection Framework.
The FTSE 100 breaks 9000: Is this the safe haven trade for 2025?
Yes, you read that right: the FTSE 100 has broken the historic 9000 barrier. We look at what has been powering the index this year.
WisdomTree’s Europe Defence ETF surpasses $3 billion in three months
WisdomTree's Europe Defence UCITS ETF (WDEF), launched on 11 March 2025, has surpassed $3 billion AUM three months after it began trading
Share Tip: the UK-listed defence player you’ve probably never heard of
This share tip looks to further capitalise on the prospects for the defence sector with a smaller UK listed defence player that isn’t well known to most investors
NATO’s turning point: the 2025 summit’s impact on European defence stocks
The upcoming NATO Summit in The Hague is poised to be a pivotal moment for European defence strategy and the defence industry
What’s driving the record highs in the FTSE 100 index?
The TINATA trade seems to be over as more international investors are rotating into alternative stock markets like the UK.
Science Group’s canny activist play for Ricardo pays off
Science Group is backing the acquisition of Ricardo by WSP having built up its own position in the company over three months.
WisdomTree’s Europe Defence ETF surges past $1 billion in a month
The achievement underscores the investor conviction in Europe’s long-term defence transformation and also highlights the ETF’s positioning.
European defence sector: growing confidence in long-term potential
Europe is ramping up investment in defence capabilities, driven by both necessity and a renewed commitment to collective security
WisdomTree launches first leveraged European Defence ETP
The new ETP provides 3x daily leveraged exposure to the STOXX Europe Total Market Aerospace & Defense Net Total Return Index.
Podcast: Europe is scaling up its spending on Defence
Stuart Fieldhouse chats with Aneeka Gupta about the health of the European Defence sector and how spending is boosting defence stocks
SRT profits soar as governments ramp-up maritime surveillance
SRT Marine Systems quadruples revenue with shares up over 100% in a year on the back of significant contracts and order book
Leading European defence sector ETF nets over $550m in two weeks
WisdomTree's Europe Defence UCITS ETF has achieved $554m in net new flows in its first two weeks of trading alone
Europe’s security crossroads: the shift towards strategic independence
European defence is at a critical stage with the possibility of reduced US military support forcing leaders to reconsider strategies
Share Tips Update: Risk picks up under Trump 2.0
Defence stocks and Trump's tariffs have dominated movements in our portfolios. Here's our regular tips review.
New European defence ETFs launched as budgets increase
The Armchair Trader partner, WisdomTree, has expanded its award-winning thematic range by launching two new ETFs. The WisdomTree Europe Defence…
Investors piling into defence stocks as Germany spends big
Investors are piling into defence stocks as geopolitical tensions and the sector’s strong fundamentals boost performance.
United Airlines backs Heirloom’s sustainable flight technology
United Airlines is doubling down on direct air capture technology via its venture fund as a solution to carbon emissions.
Our top five German stocks to watch after the election
With Germany's main stock market index setting 18 all time highs and up 14% since the start of the year, here are five stocks to watch
Europe’s Top Five Defence Stocks for the New World Order
With the US now insisting that European governments spend more on defence, we look at some of the stocks that could benefit.
Transense reports record revenue growth as SAWsense flourishes
Transense Technologies is expecting further growth ahead of its interim report with SAWsense revenues up 330% year-on-year
Tungsten: mining’s next boom metal?
China has moved to restrict exports of tungsten prompting investors to start buying stock in Canadian-listed tungsten miners.
Cohort expands global reach Down Under with new acquisition
Cohort has completed the acquistion of Australia's EM Solutions, enhancing naval defence capabilities after a record year's results
SRT Marine Systems secures $15m key contract
SRT Marine Systems secures five-year $15m contract with a sovereign-nation coastguard to implement its maritime domain awareness system
Avon Protection: Will re-built order book be enough to take this stock higher?
Avon Protection looks like one of the best quality stocks on the LSE at the moment, driven partly by fund manager love.
Volex maintains margins amid strong demand
Volex reports a strong nine months with income up 21% and is on course to meet its target revenues of at least £1bn by 2027
SRT Marine revenues soar 360% on strong H1
SRT Marine Systems latest results show the company is turning itself around, reporting an increase in revenues of more than 360%
Solid State sees tentative signs of cyclical improvement
Solid State disappoints with its interims, but optimism remains as management sees signs of a cyclical improvement
SRT Marine Systems confident of 2025 outlook despite short-term challenges
With £1.2bn of contracts in the pipeline and the strong possibility of winning a big deal, SRT Marine Systems outlook looks favourable
TT Electronics: Hidden gem or value trap?
TT Electronics resists three unsolicited take-over offers. North American performance drags down an encouraging period for the group
Solid State secures two significant US defence contracts
Solid State has secured two contracts worth in total nearly £4m to supply its ruggedised batteries to defence contractors in the US
Transense Technologies continues strong growth curve
Transense Technologies continues its strong performance with revenue, profit, and EPS up. Gains inclusion in two significant development projects
Filtronic to trade ahead of expectations on SpaceX order
Filtronic expects to trade ahead of expectations after securing a new £6.4m order from SpaceX for E-band solid state power amplifier modules
VanEck reports massive interest in its defense sector ETF
Fund manager reports huge increase in volumes in its core European listed defence sector ETF as geopolitical worries continue.
Filtronic soars: revenue up 55% as profits explode
Filtronic has a strong year, with operating profit up 1,700% year-on-year, revenue up 55.8% and earnings increased by 277%
SRT Marine Systems battles headwinds but charting a course to recovery
SRT's shares take a Category Three battering on the back of delayed contracts and procurement investigation, but confident of calm waters ahead
Equipmake powers ahead, celebrating second anniversary on Aquis
Equipmake expecting a busy year as increases revenue by 60% year-on-year with significant contribution from bus repowering and retrofitting
Cohort rides defence spending wave
Cohort's profitability on the rise. Metrics outperform industry peers. Confident of meeting or exceeding market expectations on back of GBP518m record closing order book
How will upcoming European elections affect stocks?
Upcoming European elections could have major implications for several key sectors, including defence and energy stocks.
Share Tip: FTSE 250 defence stock offers great exposure to sector
With conflicts in the Ukraine and Middle East continuing, James Coffey likes the look of this FTSE 250 defence stock
US Stock Tip: Looking at blue chip defense stocks as Middle East tensions rise
Our US stock picker Raine Lahtinen adds another stock to his already market beating portfolio of Wall Street gems.
Solid State beats analyst forecasts with strong performance in systems division
Solid State has a record-breaking year with revenues and profit before tax being ahead of analysts’ consensus
Defense ETFs launching to meet investor appetite for New World Order
A trio of fund managers have now launched dedicated defense sector ETFs designed to track the performance of major sector players.
From battlefield to broadband: Filtronic targets next-gen defence and space contracts
AIM listed electronic components stock Filtronic set to comfortably exceed market expectations for the next half year
Why I am buying in to this pedigree US defence stock
With global tensions high from the ongoing Ukraine/Russia and Israel/Hammas conflicts, Raine Lahtinen is buying this US defence stock
QinetiQ enjoys strong year of growing revenues and margins
QinetiQ is making progress penetrating the US defence market with key DoD contract wins as global defence spending accelerates
Solid State shares remain attractive following another positive set of results
Solid State continues its strong performance with half-year update showing revenue up 48% and profit before tax, up 67%
Gooch & Housego trading ahead of expectations with scope to grow
Gooch and Housego expecting revenues and profits for full year to be ahead of market expectations despite contraction in order book
Cohort expects strong demand to continue in a growing market
Cohort reports strong year-to-date with its order book at over GBP370m, over 90% of its expected revenue for the full year
RTX Corp: will global defence spending boom boost the stock in 2023?
RTX Corp is forecasting $9bn free cash flow by 2025: should investors be keeping faith with this world leading engine manufacturer?
Does General Dynamics stock price rise suggest bullish trend reversal?
General Dynamics stock recently tested a major support line but the stock has rebounded strongly and surpassed this critical support level
Cohort expects record year as global instability rumbles on
Cohort reports record order book on the back of geo-political uncertainty brought on by war in Ukraine and tensions in Pacific region
Our top five aerospace and defence stocks from around the world to watch in Q2
We take a tour of five of the top-rated defence and aerospace stocks around the world, including US, UK and Israeli companies.
TT Electronics maintains strong momentum into 2023
TT Electronics maintains strong momentum into 2023, but experiencing supply chain issues and the effect of inflation on components
Solid State expecting record revenues on strong second-half
Solid State expecting record revenues; still experiencing supply chain issues, but built up inventory. Cash surplus used to pay down debt
Filtronic expecting short-term supply issues to ease
Filtronic announces new LEO contract and hopes for further wins in aerospace, defence and space in 2023 as targets 20% EBITDA by 24/25
Rheinmetall expecting 20% growth as Leopards roll into Ukraine
Rheinmetall anticipating 20% growth for the year as Germany deploys Leopard I main battle tanks in the war in Ukraine
Cohort sees y-o-y profits increase by nearly 200%
Cohort reports improved profit, revenue and sales as defence spending grows to stave of transnational threats.
Is it time to buy back into Babcock shares yet?
We take a look at struggling defence stock Babock International Group to assess whether it has the scope to bed a turnaround play.
SRT Marine Systems confirms £600m contracts in pipeline
SRT Marine Systems announces 300% increase in y-o-y revenues to GBP18,8m with GBP600m of verified government contracts in pipeline
BAE Systems surging share price has more room to run
BAE Systems bucks the FTSE100 trend with share price rising 43% YTD versus a 3% decline in the index, but has even more potential upside
SRT Marine Systems: maritime civil defence in focus
As global insecurity increases civil defence contractor SRT Marine Systems looks forward to a year of growth and expansion
Rolls-Royce: how are institutional investors positioned right now?
We take a deeper dive into the Rolls-Royce numbers in the wake of last week's results and analyse the posture of larger investors.
Transense Technologies senses strong year ahead
Transense Technologies is riding on the back of a 10-year agreement with Bridgestone, committing more R&D to its SAW technology
France’s defence sector gem with better financials than Thales
Our tip this week is a small French defence and aerospace play trading well below its 52 week high but with solid financials.
TT Electronics expecting growth in all business lines
TT Electronics bounces back after lockdown, reporting double pre-pandemic order book and operating profits up 4%
Cohort profits up to GBP10.2m with record closing order book
Cohort PLC results: Profits up to GBP10.2m, EPS up to 22.5p, orders up to GBP186.4m as global security concerns highlight defence spending
Cohort could become a winner from the war in Ukraine
As War in Ukraine rages on, AIM-listed Cohort could benefit from increased spending on defence from Western democracies
The new FAANG stocks for a changing world
Merrill Lynch has published its FAANG 2.0 analysis, looking at the sectors it thinks are going to do well out of the present realities.
Is there potential for Avon Protection after wind down of body armour business?
Selin Bucak looks at protective equipment maker Avon Protection as it makes an effort to turn itself around.
Wombat Invest to offer UK investors dedicated space ETF
Latest ETF on the Wombat Invest platform is designed to provide dedicated portfolio of space companies in an easily investable format.
Babcock International: share price of defence engineer soars as jobs slashed
Despite the announcement of 1000 redundancies and further write downs, Babcock International shares have soared 33%
Rolls Royce share price: investors are backing RR again despite 2020 losses
The 2020 numbers were worse than many shareholders were expecting, but big allocators are starting to stack up on the long side of RR stock.
Raytheon Technologies: bullish projections for aviation recovery are driving this stock
Already boosted by vaccines, Raytheon Technologies surprised analysts with its excellent FCF numbers and how it soldiered through the depths of the pandemic.
Tax on Big Tech and the United Technologies and Raytheon mega-merger
Peter Watson reviews the news to bring you two of his favourite stories each day. Today he talks about tax on Big Tech and the United Technologies and Raytheon mega-merger
Why it may be time to start worrying about Airbus
Airbus shares did well last year, but will they continue if the company can't sell its A380 aircraft to the Middle East?
Is the BAE Systems share price in trouble?
As it slashes 2000 jobs in the UK we ask if investors should be holding onto BAE Systems shares