Rheinmetall shares pop 8% setting new ATH 📈European defense sector surges on budget spending shift

European defense stocks are leading today’s gains across the continent, with Germany’s Rheinmetall (RHM.DE) taking the top spot, surging 8% to become the strongest component of the DAX index. The rally is driven by expectations of increased investments in the broader military-industrial sector across Europe. At the Munich Security Conference, European leaders agreed that higher defense budgets for European economies are virtually inevitable.

A Fundamental Shift in Defense Investments

Beyond Rheinmetall, shares of German defense electronics firm Hensoldt have soared nearly 14%, while Thyssenkrupp, a steel producer and key supplier to the German navy, has surged 18%. The rally is not limited to German defense stocks; gains are also observed across other European markets.

• Norwegian defense giant Kongsberg Gruppen is up 6%,
• Italy’s Leonardo is gaining 6%,
• UK’s BAE Systems has climbed 7%,
• France’s Dassault Aviation is trading nearly 5% higher,
• Thales is also seeing a similar upward move.

The surge in defense stocks is linked to expectations of significantly higher defense budgets across European economies after the United States effectively shifted part of the responsibility for maintaining peace in Ukraine onto Europe. Investors anticipate that defense spending will rise sharply across nearly all EU economies to meet NATO’s new guidelines.
Today, a summit of European leaders is scheduled, with key participants including:

• French President Emmanuel Macron,
• German Chancellor Olaf Scholz,
• UK Prime Minister Rishi Sunak,
• Polish Prime Minister Donald Tusk.

Shift Toward Higher Defense Spending

All signs point to an obvious long-term scenario—structurally higher defense investments across Europe.

• European Commission President Ursula von der Leyen has proposed that defense investments should be exempt from EU debt limits.
• Meanwhile, the United States is now urging NATO members to allocate 5% of their budgets to defense, compared to the previous 2% target agreed upon in 2006.

In 2024, European defense expenditures likely reached approximately €326 billion, with an average investment of around 2% of GDP per country, according to estimates from Banca Akros. However, Italy and the Netherlands have lagged behind in meeting these commitments.

If the 5% target becomes a reality, record-breaking investments in the sector are yet to come.

Rheinmetall Stock Chart (D1 Interval)

Shares of Germany’s Rheinmetall have surged to a new all-time high (ATH), approaching €900 per share, compared to less than €100 before the Ukraine war. The company is one of the few in Europe capable of large-scale artillery ammunition production, including 155mm shells.

Source: xStation5