Investing in Defense Stocks Amid Europe's Rising Defense Budgets

Introduction

As geopolitical tensions escalate and European nations prioritize self-defense, many countries are significantly increasing their defense budgets. This shift, driven by pressures such as the Russia-Ukraine conflict and calls from U.S. leadership for Europe to bolster its own security, has created a favorable environment for defense-related investments. This article explores U.S. defense stocks poised for growth due to Europe’s increased spending and evaluates European defense companies listed on U.S. exchanges, providing specific data and analyst insights to guide investors.

Why Defense Stocks?

Europe’s defense budget increases are substantial. According to the Stockholm International Peace Research Institute (SIPRI), global military expenditure reached $2.24 trillion in 2024, with Europe accounting for a growing share. NATO data indicates that European allies spent $380 billion on defense in 2024, a 12% increase from 2023, with countries like Germany, Poland, and the Baltic states leading the charge. This spending surge benefits U.S. defense contractors, which supply advanced weaponry and systems to NATO allies, and European defense firms with U.S.-listed stocks, which are capitalizing on regional demand.

Recommended U.S. Defense Stocks

Below are three U.S. defense stocks expected to benefit from Europe’s defense budget expansion, supported by recent performance data and analyst evaluations.

1. Lockheed Martin Corporation (LMT)

Market Performance: As of May 30, 2025, Lockheed Martin’s stock price is approximately $480 per share, up 15% year-to-date (YTD) per Yahoo Finance.
Why Invest?: Lockheed Martin is the world’s largest defense contractor, producing critical systems like the F-35 Lightning II, which is in high demand across NATO countries. In 2024, the company secured a $17 billion contract to supply F-35 jets to European allies, including Germany and Poland. Its diversified portfolio, including missile defense systems and helicopters, positions it to capture a significant share of Europe’s spending.
Financials: Q1 2025 revenue was $17.2 billion, a 10% increase year-over-year, with a backlog of $159 billion, per the company’s earnings report.
Analyst Ratings: According to MarketWatch, 70% of analysts rate LMT as a “Buy,” with a consensus price target of $510, implying a 6.25% upside. Goldman Sachs noted, “Lockheed’s exposure to NATO contracts ensures stable growth amid rising European budgets.”

2. RTX Corporation (RTX)

Market Performance: RTX’s stock trades at around $110 per share, with a 20% YTD gain as of May 30, 2025, per Bloomberg.
Why Invest?: Formerly Raytheon Technologies, RTX is a leader in missile systems (e.g., Patriot) and radar technologies, both critical for European nations enhancing air defense capabilities. Poland’s $10 billion Patriot system order in 2024 underscores RTX’s European market strength.
Financials: RTX reported $19.3 billion in Q1 2025 revenue, up 12% from Q1 2024, with a 15% increase in defense segment sales, per its earnings release.
Analyst Ratings: Per Reuters, 65% of analysts rate RTX as a “Buy,” with a median price target of $120, suggesting a 9% upside. J.P. Morgan highlighted RTX’s “robust order pipeline from Eastern Europe” as a key growth driver.

3. Boeing Company (BA)

Market Performance: Boeing’s stock is at $185 per share, reflecting a 10% YTD increase as of May 30, 2025, per Investing.com.
Why Invest?: Boeing’s defense division, which produces the Apache helicopter and KC-46 tanker, benefits from Europe’s focus on military modernization. A $5 billion contract for Apache helicopters to the Netherlands and Poland was announced in Q1 2025.
Financials: Boeing’s defense, space, and security segment generated $7 billion in Q1 2025 revenue, up 8% year-over-year, per its earnings report.
Analyst Ratings: According to Barron’s, 55% of analysts rate BA as a “Hold” due to commercial aviation challenges, but defense growth is a positive factor. The consensus price target is $200, indicating an 8% upside. Morgan Stanley noted, “Boeing’s defense contracts in Europe provide a buffer against commercial volatility.”

European Defense Stocks Listed in the U.S.

Investors can also consider European defense companies with American Depositary Receipts (ADRs) listed on U.S. exchanges. These firms are directly benefiting from Europe’s rearmament.

1. BAE Systems plc (BAESY)

Market Performance: Trading at $70 per share, BAE Systems’ ADR has risen 25% YTD as of May 30, 2025, per Yahoo Finance.
Why Invest?: Based in the UK, BAE Systems is a leading supplier of combat vehicles, naval systems, and cybersecurity solutions. It secured a $4 billion contract in 2024 to supply Typhoon jets to European air forces. The company’s U.S. operations also benefit from NATO interoperability programs.
Financials: BAE reported £13.2 billion ($17.5 billion) in H1 2025 revenue, a 10% increase year-over-year, with a £70 billion order backlog, per its interim results.
Analyst Ratings: Per Financial Times, 80% of analysts rate BAESY as a “Buy,” with a consensus price target of $78, implying a 11.4% upside. Deutsche Bank stated, “BAE’s diversified portfolio and European defense contracts make it a top pick.”

2. Rheinmetall AG (RNMBY)

Market Performance: Rheinmetall’s ADR trades at $120 per share, with a 30% YTD gain as of May 30, 2025, per Bloomberg.
Why Invest?: Germany’s Rheinmetall is a key player in armored vehicles and artillery systems, capitalizing on Germany’s €100 billion defense fund announced in 2024. Its Leopard 2 tanks and ammunition systems are in high demand across Eastern Europe.
Financials: Rheinmetall’s Q1 2025 revenue was €2.1 billion, up 16% from Q1 2024, with a €40 billion order backlog, per its earnings report.
Analyst Ratings: According to Reuters, 75% of analysts rate RNMBY as a “Buy,” with a consensus price target of $135, suggesting a 12.5% upside. Christoph Lascawi of Deutsche Bank noted, “Rheinmetall’s role in Europe’s rearmament positions it for sustained growth.”

Risks and Considerations

While defense stocks offer strong growth potential, investors should be mindful of risks:

Geopolitical Shifts: A de-escalation in European tensions could reduce defense spending.
Market Volatility: Trade policies, such as U.S. tariffs, may impact stock performance, as noted by J.P. Morgan.
Valuation Concerns: Some stocks, like Rheinmetall, trade at premium valuations (P/E of 22 for RNMBY vs. 15 for LMT), which could limit upside if growth expectations falter.

Conclusion

Europe’s rising defense budgets present a compelling opportunity for investors in U.S. and European defense stocks. Lockheed Martin, RTX, and Boeing offer exposure to NATO’s growing demand, while BAE Systems and Rheinmetall provide direct access to Europe’s rearmament. With strong financials and favorable analyst ratings, these stocks are well-positioned for growth. However, investors should monitor geopolitical developments and valuations to optimize their strategies. For further details on market data, visit Investing.com or Yahoo Finance.