9 surging European defence stocks as transatlantic tensions intensify

Hundreds of thousands, if not millions of viewers around the world have now watched an explosive confrontation between Ukrainian President Volodymyr Zelenskyy, US President Donald Trump and US Vice-President JD Vance in the Oval Office over the weekend. 

Trump's accusation that Zelenskyy is "gambling with WWIII" made headlines, while European leaders, like EU foreign secretary Kaja Kallas, have rallied behind the Ukrainian President, arguing that “the free world needs a new leader”. 

Similarly, Germany's chancellor-in-waiting Friedrich Merz stated that both his country and the European continent can no longer rely on the US as a security blanket, arguing Europe needs "real independence". Meanwhile, the UK's Prime Minister Keir Starmer announced the biggest increase in defence spending since the Cold War. 

For context, Europe has underspent on defence for some time. Trump's second term in government is a significant turning point, particularly as Europe reconsiders its approach to both Ukraine and the reliability of its own allies. 

For transparency, we decided to buy into European and UK-based defence names two weeks ago. As mentioned above, the need for increased defence spending in the region isn't exactly new. However, Trump's changing views on Ukraine are a catalyst for greater political and popular support of security independence.  

Defence budgets in the region will likely shift from 2% of GDP to 3-4%. Currently, 60-70% of suppliers to the region are based in the US. However, as European nations prioritise strategic autonomy and domestic security capabilities, we expect a mix shift in spending to favour local European and UK-based suppliers. 

This creates a powerful dual growth catalyst - not only will the overall defence spending pie grow substantially, but European suppliers should also capture a larger slice of that expanding market, signalling the start of a new structural growth cycle.

We have decided to play the theme with a portfolio approach, with 20% of the Minotaur Global Opportunities Fund currently weighted towards European and UK defence names. In this wire, I'll outline some of the companies we believe are likely to benefit from this new defence spending growth cycle. 

European defence stocks that could benefit from increased spending in the region

1. Rheinmetall (ETR: RHM): This is our biggest position to play the theme, and what we'd consider the "NVIDIA of European defence." Rheinmetall specialises in tanks, armoured vehicles, and critical ammunition. With minimal exposure to US defence contracts and maximum exposure to Germany's expanding budget, Rheinmetall stands at the forefront of Europe's defence revival.

2. BAE Systems (LON: BA): The UK's defence powerhouse, BAE delivers a comprehensive suite of military solutions from fighter jets to submarines. It is poised to benefit from both European spending increases and sustained US defence expenditure through its American subsidiary.

3. Leonardo (BIT: LDO): Italy’s defence champion is renowned for its helicopters, electronics, and combat systems. Leonardo is deeply integrated into European collaborative projects, notably the next-generation Tempest fighter jet.

4. Kongsberg (OSE: KOG): This Norwegian innovator leads in missile technology and air-defence systems, recently securing significant contracts across NATO, including from the Netherlands and the US Navy.

5. Dassault Aviation (EPA: AM): France’s leading combat jet manufacturer continues to secure lucrative international contracts for its Rafale jets and plays a pivotal role in the Franco-German-Spanish FCAS next-gen fighter program.

6. Chemring (LON: CHG): The UK’s specialist in military energetics, sensors, and countermeasures, Chemring is perfectly positioned to meet increasing demand for advanced defensive technologies in Europe.

7. Indra Sistemas (BME: IDR): Spain’s key player in digital defence, Indra provides sophisticated command-and-control systems. It serves as Spain’s coordinator in the critical FCAS program, bolstering Europe's technological independence.

8. RENK Group (ETR: R3NK): A critical German supplier of transmissions and drive systems essential to Europe’s armoured vehicle fleets. RENK benefits directly from Europe's increased investment in ground defence capabilities.

9. Airbus (EPA: AIR): While primarily known for commercial aviation, Airbus Defence & Space is central to several significant European defence programs, including transport aircraft and the Eurodrone initiative.

Other names that we don't currently hold, but could be interesting: 

• Thales (EPA: HO): French leader in advanced defence electronics and cybersecurity.
• Saab (STO: SAAB-B): Sweden’s prime defence firm, highly defence-focused.
• Hensoldt (ETR: HAG): Specialist in defence electronics and sensors.
• QinetiQ Group (LON: QQ): Primarily defence-focused R&D, testing, and evaluation.

The shift may also prompt other allies globally to rethink their reliance on the US. Notably, Japan's leading defence stock, Mitsubishi Heavy Industries (TYO: 7011), is up 13% this week.

This historic shift in Europe's defence posture isn't a trivial reaction to recent geopolitical friction. Rather, it signals an inflection point that could drive these stocks significantly higher in the coming years.