European Defense Stocks Surge as U.S. Military Moves Intensify

Note: This section contains information in English only.
Source: Dukascopy Bank SA
The European defense sector has shifted into a "growth-at-a-premium" phase, driven by rising defense budgets, technological integration, and geopolitical tensions. Among the top players, BAE Systems, Leonardo, and Thales each hold distinct strategic positions.

For BAE Systems (BA.GB/GBX) 2026 will be a big year, a key ramp-up year for BAE's SSN-AUKUS submarine program, supported by the UK's plan to expand its nuclear attack fleet from 7 to 12 vessels and invest billions in Barrow-in-Furness infrastructure. The Global Combat Air Programme (Tempest) with Italy and Japan has entered an intensive design phase, generating high-margin R&D revenue for BAE as lead systems integrator. The company is also expanding into space and intelligence, developing satellite-based data centers and radiation-hardened space computing, positioning itself as a "Defense Tech" leader and attracting new investors.



Leonardo's (LDO.IT/EUR) 50/50 joint venture with Rheinmetall positions it as the main electronics and systems provider for the Italian Army's rearmament program, closing its previous gap in heavy land systems. The company continues to lead the European military helicopter market, benefiting in 2026 from extensive naval helicopter upgrades across the Mediterranean and Middle East. Leonardo is also a key player in space, advancing the EU's secure satellite constellation through its "Space Alliance" with Telespazio and Thales Alenia Space, reaching critical deployment milestones this year.



Thales (HO.FR/EUR) holds a "triple-threat" position in defense electronics, cybersecurity, and space, benefiting from the digitalization of the battlefield. Its role in Rafale jet production, including India's 26-jet naval order and localized RBE2 AESA radars, strengthens margins and global sensor leadership. Thales Alenia Space is a key partner in the EU's €10.6B IRIS² secure satellite program, capturing long-term government contracts. In cybersecurity, demand for post-quantum encryption is rising, aided by the full integration of Imperva, boosting recurring software revenue. The SAMP/T NG air defense system enters full production in 2026, addressing Europe's medium-range missile defense needs.



Globally, these stocks are supported by NATO rearmament programs, rising European defense budgets, U.S. military activities, and technological modernization in areas such as AI, autonomous systems, and secure satellite communications.
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