Stocks of major defense firms, including BAE Systems, Rheinmetall and Thales, surged over 10%|@RheinmetallAG|X

After Ukrainian President Volodymyr Zelensky’s Oval Office meeting on Friday with President Donald Trump went off the rails, Europe’s defense industry stocks rallied yesterday as investors bet on rising military budgets.

The market movement comes as European countries prepare to increase defense spending as Trump pauses military aid to Ukraine, which makes investors believe that now Europe will need to up its defense investment.

European nations, including Denmark and the UK, have already increased spending, with more NATO members expected to follow, said NATO Secretary-General Jens Stoltenberg. The European Council will meet Thursday to discuss lifting defense spending caps by easing fiscal rules.

The stock rally had the European Stoxx 600 surpass the S&P 500 in year-to-date returns.

Investors bet on long-term growth
Analysts predict European defense budgets could rise by $155.66 billion, driving demand for weapons, ammunition, and military platforms.

Stocks of major European defense firms saw growth. The UK’s BAE Systems, Germany’s Rheinmetall and France’s Thales surged over 10%.

Investors see a long-term opportunity, as analysts call this a “structural bull cycle” that could last beyond 2030. Market experts say rising geopolitical tensions and the potential reduction of US military presence in Europe are fueling this expansion. Analysts predict that European countries would likely continue to spend on weapons even after Kyiv and Moscow stop fighting since there is no guarantee that Russia won’t strike Ukraine again or any other nation on the continent.

Nuclear deterrence plans emerge
France and the UK, Europe’s only nuclear powers, are considering extending nuclear protection to the continent.

If a plan moves forward, France may order more Rafale fighters and nuclear submarines, benefiting companies like Thales and Dassault Aviation.

The UK could increase orders for nuclear-capable submarines from BAE Systems and Rolls-Royce, strengthening European defense capabilities. If Europe raises defense spending to 3% of GDP, stocks could grow into the early 2030s.