Europe's defense sector has been reshaped since Russia's full-scale invasion of Ukraine in February 2022, as governments increase spending on defense and plan to boost their military ranks almost four years into the conflict.
With global unrest and tension from Venezuela to Iran, the sector has drawn greater investor interest, with shares of public defense contractors hitting consecutive record highs. Europe's aerospace and defense index .SXPARO gained around 55% over the past year, according to LSEG data.
The rally has been reinforced by signs of capital markets appetite for defense exposure, including the planned initial public offering of Czech arms maker Czechoslovak Group (CSG), one of Europe's largest privately held defense companies.
European defense spending on the rise
EU member states' defense spending climbed to 343 billion euros in 2024 (about 1.9% of GDP) and likely hit 381 billion euros in 2025 (around 2.1% of GDP), while defense investment jumped to a record 106 billion euros in 2024 and is projected at nearly 130 billion euros in 2025, EU Council data shows.
European nations are lifting budgets towards or above NATO's 2% of GDP target. Alliance leaders in June agreed a higher benchmark equivalent to 5% of GDP by 2035, split into 3.5% for core defense and 1.5% for wider security-related spending.
Germany created in March a 100 billion-euro special fund to accelerate procurement. Parliament has approved measures allowing defense spending above 1% of GDP to bypass constitutional debt rules.
Poland, NATO's top defense spender by share of GDP, spent about4.1% of output in 2024 and is targeting some 4.7% in 2025, while France, Italy and Nordic countries are spending more across air defense, ammunition, cyber and naval platforms.
Spotlight on defense champions and rising stars
The focus on defense and aerospace has bolstered firms around the region, big and small.
Established names include giant aircraft maker Airbus AIR.PA, British defense group BAE Systems BAES.L, German armored vehicle maker Rheinmetall RHMG.DE, and helicopter-to-electronics Italian firm Leonardo LDOF.MI.
German radar and electronic‑warfare systems expert Hensoldt HAGG.DE has seen rising demand for situational-awareness and air-surveillance technologies as European states address air defense gaps.
Sweden's Saab SAABb.ST produces Gripen fighter jets, submarines and electronic-warfare systems; while French firms Safran SAF.PA and Thales TCFP.PA supply kit for military propulsion, defense electronics, radar and cyber systems.
Rising stars include German tank gearbox maker Renk Group R3NK.DE, which listed in 2024.