A report published by the Investing platform stated that the European defense sector is expected to continue to benefit from its high valuations compared to the broader market until 2025, supported by increasing pressures on military spending fueled by geopolitical factors, including the significant influence of former US President Donald Trump.
A shift in NATO standards
Analysts at Bank of America Securities pointed out that Trump’s calls to increase NATO members’ spending on defense to 5% of GDP represents a major factor in this trend, according to what the platform reported.
Currently, the Alliance is working to raise spending targets to 3% of GDP, and this indicates a major shift in the defense strategies of the NATO countries.
According to Investing, these increased investments focus on enhancing capabilities in the areas of air defense, offensive weapons systems, and deterring nuclear threats.
These moves indicate that member states’ commitments will support high valuations for European defense companies over the next two years.
Europe and global security dynamics
Data cited in the report show that European defense companies are currently trading at a modest premium compared to their American counterparts, a shift from historical trends where European companies often lagged in performance.
Analysts attribute this change to improved growth prospects and increased recognition of Europe’s vital role in global security.
The sector has witnessed the entry of new players reshaping the competitive landscape, such as Helsing in Europe and Anduril in the United States.
These companies offer innovative technologies such as drone swarm control systems and precision munitions systems.
Analysts at Bank of America Securities believe that these innovations may add new momentum to the defensive sector.
Factors supporting high valuations
The European defense sector is expected to maintain its strength due to several factors, which the report summarized as follows:
- Growing geopolitical tensions: especially in Eastern Europe and the Arctic regions.
- Shifts in NATO policies: which strengthen the financial commitments of member states.
- Technical developments: which provide innovative solutions to enhance defense capabilities.
Bank of America Securities analysts expect high valuations for the European defense sector to continue until the end of 2025, supported by strategic pressures and growing confidence in the industry’s ability to adapt and withstand challenges.
The report indicates that the balance between technological innovation and expansion of defense budgets will play a decisive role in shaping the future of this sector.
