Top 5 European Defence Stocks Worth Watching Long-term

giuliapedrinivisio
Jul 22
5 min read

Updated: Aug 5

Author: Davide Hennig

The European Defence Revival

Europe’s military spending is rising amid heightened geopolitical tensions. Defence budgets across NATO are climbing towards targets well above 2% of GDP, reversing decades of underspending. As a result, the continent’s arms industry is witnessing record order backlogs and, in turn, significant revenue growth. Moreover, governments are prioritizing domestic suppliers to strengthen strategic autonomy, favouring European contractors over foreign imports.

All of this has come together to create strong upward momentum in these companies stock prices. So, and in no particular order, let’s take a look at the top 5 European Defence stocks worth keeping an eye on.

BAE Systems: Anchored by Record Demand

BAE Systems is Europe’s largest defence contractor and a cornerstone for investors seeking stability with upside. The UK-based company’s order backlog hit a record £77.8 billion in 2024, roughly three times its annual sales. This backlog provides years of revenue visibility and is still growing as NATO allies continue to purchase combat vehicles, warships and fighter upgrades. BAE’s broad portfolio, including submarines, jet fighters and artillery shells, means it is benefiting across the board from higher budgets.

For example, it has ramped up ammunition production with new facilities to meet demand for Ukraine and NATO stockpiles. Furthermore, BAE is a lead partner in next-generation programs like the Global Combat Air Programme (GCAP). As a result, management expects sales to top £30 billion in 2025 with earnings growing near 10%. The stock has more than doubled in value since 2022, yet still offers a modest dividend (~2%) and a reasonable valuation.

In summary, BAE Systems provides a resilient long-term play on Europe’s defence buildup.

Thales: Defence Electronics on the Rise

French group Thales is Europe’s top defence electronics and technology provider, making everything from radar systems to cybersecurity solutions. It has emerged as a clear winner of the recent military tech boom. In 2024, Thales’ revenues climbed to €20.6 billion as defence sales jumped 13%, far outpacing its civil aerospace and digital segments. New orders hit €25.3 billion, an all time high, and management noted that orders are again set to exceed sales in 2025, further building its backlog.

Countries are urgently funding Thales’s air defence radars, secure communications, and military satellite systems. For instance, its Ground Master radar line and avionics are in high demand as European armies modernize. Thales is also expanding in cybersecurity and AI, which serve both defence and civil markets, giving it diversified growth drivers. As a result, the company forecasts mid-single-digit sales growth in 2025 with improving margins.

With a solid balance sheet and state support (the French government is a key shareholder), Thales offers an innovation-driven bet on the modernisation of Europe’s militaries.

Airbus: Aerospace Giant Pivoting to Defence

Airbus, while best known for its jetliners, also plays a major role in Europe’s defence and space industry. The company stands to gain significantly as governments seek home-grown solutions. It’s Defence and Space division (about €12 billion in annual sales) is seeing renewed momentum. European nations are not only ordering transport aircraft and helicopters, but also looking to Airbus for secure satellites and drones amid new security concerns.

As an example, Airbus is in talks with several countries to develop sovereign satellite networks. This as leaders look to reduce reliance on Elon Musk’s Starlink, in the face of the billionaire’s perceived unreliability. It is also leading Europe’s flagship jetfighter projects. Notably, Airbus co-leads the Future Combat Air System (FCAS), a €100 billion multi-decade project, alongside France, Germany, and Spain.

In short, Airbus offers long-term investors a balanced exposure: a stable commercial aerospace franchise plus an upswing in high-tech defence contracts.

Leonardo: A Strategic player in Europe’s Rearmament

Italy’s Leonardo has transformed itself into a key player poised to ride Europe’s defence upturn. The firm is active in military aircraft, helicopters, electronics, and space. The company typically captures about one-third of Italy’s defence procurement spending, and a solid share across Europe. For example, the company is already a core partner with BAE in the GCAP fighter jet program.

It has also launched a new Space division and entered into new high-profile collaborations. These including a joint venture with Turkey’s Baykar for unmanned drones and cooperation with Germany’s Rheinmetall on a next-generation tank. Moreover, Leonardo continues to win international orders, such as military helicopter contracts from the UK, showcasing export potential beyond the EU.

Overall, Leonardo offers a compelling growth story tied to Europe’s strategic autonomy drive.

Rheinmetall: Riding the Rearmament Wave

Germany’s Rheinmetall has surged to prominence as Europe’s fastest-growing defence stock. The company is a specialist in armoured vehicles, artillery and munitions, and is reaping the rewards of Europe’s urgent rearmament. In early 2025, Rheinmetall reported a 73% jump in defence segment sales year-on-year, driving a 46% rise in total Q1 revenue. Its order books are overflowing: backlog has swelled to around €63 billion by spring 2025.

To keep up with the massive inflow of orders, the company is expanding capacity at an unprecedented pace. CEO Armin Papperger quips that clients are “buying entire factories” to get more arms produced. As Europe’s largest munitions manufacturer, Rheinmetall is filling stocks for NATO allies and Ukraine, with relevant divisions posting record outputs. Moreover, the company’s future prospects are overflowing as management envisions total order potential up to €300 billion by 2030.

For long-term investors bullish on sustained defence outlays, Rheinmetall offers a unique high-growth exposure. Its blend of market dominance in land systems and ambitious expansion plans position it as a potential “global defence champion” in the making.

Conclusion

In summary, Europe’s defence sector is entering a prolonged uptrend that could last well beyond the current conflicts. The five companies profiled each tap into key long-term growth drivers:

Structurally higher military budgets.
Geopolitical realignment on European self-reliance.
Breakthrough technologies that will define the next generation of warfare.

Moreover, many European governments have committed to multi-year procurement plans, providing these firms with visibility into future revenue. Of course, investors should monitor political will and budget follow-through. So far, however, pledges are translating into backlogs and strong earnings momentum across the industry.

For long-term investors, a carefully selected basket of Europe’s defence leaders offers an appealing combination of stability and growth.