The defence sector is no longer a niche or cyclical play—it is becoming a structural necessity in investor portfolios.
With rising geopolitical tensions and global security realignments, the financial case for defence stocks has never been stronger. The surge in defence equities over the past year suggests a fundamental shift, not just a reaction to short-term events.
At the Munich Security Conference last weekend, European leaders signalled their intention to dramatically ramp up defence spending in response to pressure from the US. European Commission President Ursula von der Leyen suggested that military expenditures could be exempted from EU fiscal rules, reinforcing the bloc’s willingness to prioritise defence.
NATO’s push to increase spending targets to at least 3% of GDP underscores the growing recognition that security requires sustained investment. Markets immediately priced in the shift, with the Stoxx Europe Aerospace and Defence Index soaring to record highs.
Analysts at Citi estimate that if NATO members commit to 3% spending, European defence firms could see a 30% boost in valuation over time.
This is a conservative estimate, considering that defence procurement follows multi-year cycles, often resulting in long-term contracts that provide consistent revenue streams.
This renewed commitment to defence spending is not limited to Europe. The US remains the world’s largest military spender, and the second Trump administration is likely to push budgets even higher.
His previous term saw rapid increases in Pentagon outlays, and early indications suggest he would double down on this strategy. Washington is already pushing European allies to do more, and a White House led by Trump makes it even clearer: security spending is a necessity, not a choice.
For investors, the implications are clear. Governments very very rarely cut defence budgets even during economic downturns, making the sector one of the most resilient in the market.
Unlike discretionary industries, where demand fluctuates, military spending is tied to national security imperatives that remain constant regardless of economic conditions. In fact, history teaches us that defence stocks often outperform during periods of market volatility.
Technological innovation is another major driver of growth. AI, cybersecurity, hypersonic weapons, and drone warfare are reshaping modern military strategy.
Companies at the forefront of these technologies are likely to be among the biggest winners. While traditional defence giants will benefit from increased procurement, smaller firms specialising in next-generation military tech could offer even greater upside. Investors who understand this shift early will be in a prime position to capitalise on it.
The global security landscape is also undergoing a seismic transformation. The US-led talks in Saudi Arabia regarding Ukraine—where neither Ukraine nor Europe were included—highlight a broader reality: Europe must take greater responsibility for its own defence. The continent can no longer assume Washington will always take the lead.
This is fuelling renewed urgency to invest in military capabilities and reduce reliance on external powers.
Defence spending is no longer just about traditional warfare. Countries are prioritising cyber defence, space-based security, and energy infrastructure protection, further expanding the scope of investment opportunities.
The war in Ukraine has demonstrated the critical role that private sector defence contractors play in modern conflicts. From drone warfare to satellite communications, civilian technology is now deeply integrated into military operations, opening new revenue streams for companies that bridge these industries.
Despite ethical concerns surrounding defence investments, governments around the world have made it clear: national security comes first. Investors who hesitate based on moral debates risk missing out on a sector that is structurally positioned for long-term growth.
Defence isn’t just a response to war; it is about deterrence, stability, and technological advancement.
Nigel Green is deVere CEO and Founder
Also published on Medium.
