JPMorgan Raises Price Targets for European Defense Companies by 25% Amid Rising Defense Budgets
Recent geopolitical tensions have significantly boosted investor confidence in European defense companies, with JPMorgan lifting price targets across the sector by an average of 25%.
The catalyst for this surge was the high-profile confrontation between President Donald Trump, Vice President J.D. Vance, and Ukrainian President Volodymyr Zelensky. The diplomatic fallout from this incident, combined with mounting concerns over U.S. disengagement from European security, has prompted European nations to ramp up their defense spending.
On Monday, European defense stocks posted their strongest performance in years. Germany’s Rheinmetall saw a 10.3% rise, while the U.K.’s BAE Systems surged 14.1%. Leonardo, partly owned by the Italian government, climbed 9.1%, France’s Dassault Aviation gained 14.9%, and German radar systems maker Hensoldt soared 19.3%. The Stoxx aerospace and defense index rose by 7%, reflecting broad investor optimism.
In Germany, reports indicate that centrist parties are considering establishing two special fiscal funds worth at least €200 billion ($208 billion) for defense spending, bypassing the country’s constitutional debt brake. The upper estimates suggest Germany may need up to €400 billion in defense investment, alongside €500 billion in public infrastructure spending.
At a special summit in London, U.K. Prime Minister Keir Starmer and French President Emmanuel Macron pledged to increase defense spending, reinforcing the trend across the continent. Deutsche Bank’s chief German economist Robin Winkler noted that the higher end of the proposed German funds would rival the investment made in East Germany since reunification and could represent up to 2% of the country’s GDP.
JPMorgan analysts project that by the end of 2026, the four largest European defense stocks companies — BAE, Thales, Leonardo, and Rheinmetall — could be trading at 20 times earnings, up from the current 16 times. The firm expects NATO’s European members to boost defense spending to at least 2.5% of GDP, with around 40% of budgets directed towards equipment development, procurement, and maintenance.
“As budgets rise, the share allocated to equipment tends to increase,” the analysts noted, adding that a greater portion of those contracts is likely to go to European defense companies.
However, the analysts cautioned that significant increases in sales and earnings guidance might not materialize this year, given the time required to finalize budgets and negotiate contracts.
