When you think of the UK stock market, it may not fill you with enthusiasm. However, there is one stock that is a British success story: Rolls Royce. It is the 5th best performer on the FTSE 100 so far this year and is higher by more than 100%. Its track record over the last 5 years is stunning: it is higher by nearly 3,000%.
It is worth noting that Rolls Royce, the UK-listed company, is distinct from the BMW-owned Rolls Royce luxury car brand. Rolls Royce is a £100bn company and its core operations include civil aerospace, defense and power systems for data centres.
Without Rolls Royce there would be no air travel as we know it. To get a sense of the company’s scale, it builds 80% of all engines for the world’s jumbo jets. It is also moving into narrow jets, and is in talks to make engines for Boeing’s 737 Max model.
Rolls Royce makes for a fascinating comeback story. Its share price sunk to a mere 35p at the height of the pandemic when global aircraft were grounded. It is now the sixth most highly valued company on the FTSE 100, behind AstraZeneca, HSBC, Shell and Unilever.
Since the pandemic, there has been a confluence of factors that have come together to cause the stock price to explode.
1. Defence:
Since Russia invaded Ukraine in 2022, Nato has agreed an unprecedented 18% increase in defense spending across Nato allies. 23 Nato members now meet the 2% defense spending target out of 32 members; this is up from just 6 in 2021. The rush to boost defense spending has had a huge impact on global defense stocks. Rolls Royce is a market leader for aero engines for military transport and patrol systems; it produces submarines with unique nuclear propulsion capability as well as navy ships and helicopters. Thus, Rolls Royce is one of the key beneficiaries of Nato members ramping up their defense spend.
2. A rebound in air travel
The surge in demand for travel since the pandemic has shown no sign of abating and is driving demand for Rolls Royce engines for the likes of Airbus and Boeing, which is also beefing up revenues.
3. Artificial Intelligence
Rolls Royce is vital for data centre construction that will power the AI revolution in the coming years. There is a voracious demand for data centres right now, and the AI hyperscalers have pledged $600bn in annual capex expenditure, which has doubled in just 2 years. This is fueling demand for Rolls Royce’s backup generators, which are a vital part of the AI infrastructure build.
The financial results have experienced a rapid transformation in the past 5 years. Here are some of the highlights.
Financial highlights
- The surge in demand for Rolls Royce has seen its market capitalization nearly double in a year.
- 2025 first half results were stunning: it reported 9% growth in revenues compared to a year ago.
- The company also has chunky profit margins, gross profit margin was 22.3% in 2024, it is expected to grow to 25.8% this year.
- In 2021, Rolls Royce had negative free cash flow, which was a sign that the company was struggling. However, free cash flow has surged since then, it was £3.125bn in 2024 and is expected to rise to £3.410 in 2025. This comes even though the company continues to invest heavily in its operations.
- The company continues to report strong growth across all business segments, and this is expected to continue into 2026.
- Analysts continue to expect robust earnings growth for this year and next, as you can see in the chart below.
Chart 1: Rolls Royce earnings estimates for FY 25 and FY 26.
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Source: XTB and Bloomberg. Past performance is not a reliable indicator of future results.
The technical view
The technical picture for the stock is also supportive. Momentum, upward earnings revisions and liquidity have been some of the biggest factors driving the FTSE 100 so far this year. Rolls Royce is a great momentum stock; it made a record high in late September and has mostly traded sideways near the peak since then. Although it has experienced difficulties in some of its nuclear reactive businesses of late, these issues are surmountable as Rolls Royce embarks on its multiyear plan to become the biggest producer of small modular reactors, SMRs, a small and efficient nuclear reactor. This industry is expected to be worth $1 trillion in the next 25 years.
The stock does not look overbought from a technical perspective, and liquidity has remained stable for most of this year. The company reports earnings twice a year, the next update is expected in February 2026, and another strong earnings report will no doubt be expected.
Chart 2: Rolls Royce’s gravity defying stock price rally in the last 5 years.
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Source: XTB and Bloomberg. Past performance is not a reliable indicator of future results.
Rolls Royce is powering an uncertain world, where geopolitical tensions are high, and global economies are expected to rapidly change due to Artificial Intelligence. This is feeding strong corporate results, which is why investors keep coming back for more of the stock.
This content has been created by XTB S.A. This service is provided by XTB S.A., with its registered office in Warsaw, at Prosta 67, 00-838 Warsaw, Poland, entered in the register of entrepreneurs of the National Court Register (Krajowy Rejestr Sądowy) conducted by District Court for the Capital City of Warsaw, XII Commercial Division of the National Court Register under KRS number 0000217580, REGON number 015803782 and Tax Identification Number (NIP) 527-24-43-955, with the fully paid up share capital in the amount of PLN 5.869.181,75. XTB S.A. conducts brokerage activities on the basis of the license granted by Polish Securities and Exchange Commission on 8th November 2005 No. DDM-M-4021-57-1/2005 and is supervised by Polish Supervision Authority.
