Kepler Cheuvreux expects 2026 to remain volatile for European aerospace and defence stocks, citing geopolitical and policy uncertainty. Yet the broker argues the sector's core growth story is intact, supported by long-dated order books, firm demand, and multi-year defence budgets. Execution will be key amid stretched valuations.

Aerospace is shifting to supply-led growth as production rates recover and delivery schedules normalize. Original equipment volumes are set to outperform aftermarket for the first time since Covid, driven by easing supply bottlenecks and large backlogs. Balance sheets are improving, allowing for capacity expansion and shareholder returns.

In defence, Kepler sees a structural rearmament cycle anchoring the sector. NATO's commitment to lift spending to 3.5% of GDP by 2035 underpins a long order runway. The broker highlights execution risk, production ramp-ups, and cash margin leverage as key investor focus areas, while noting new technologies could disrupt existing positions.