The article reports that European defence stocks have suffered significant declines, with BAE, Thales, Dassault Aviation, Leonardo and Rheinmetall falling 15-20 percent over the past six months. These losses are attributed to heightened geopolitical tensions following the US-President Donald Trump's deal with Russia, concerns about Germany's Rheinmetall facing budget cuts after losing a shipbuilding contract, and broader economic headwinds. Profit expectations remain strong—visible alpha estimates project double-digit annual profit growth for 2025-2030—but execution faces hurdles.
Higher borrowing costs have strained government budgets, while Chancellor Friedrich Merz has seen declining popular support. Additionally, Europe's traditionally slow procurement systems struggle to develop new capabilities amid rapid technological shifts toward drone and software-based warfare highlighted by the US Department of Defense's Project Meridian. Experts note that while some firms like BAE have outperformed peers by focusing on longer-term projects, the overall sector reflects Europe's perceived geopolitical weakness rather than strategic ambition.
The stocks' underperformance serves as a warning sign of the continent's difficulties in modernizing its defence industry.
Source: Financial Times Companies · Summarized by HeadlinesBriefing