The feeling is that we are heading towards the end of the war between Russia and Ukraine. That is what most people believe. Not everyone. The numbers show that the European defense sector does not believe in Trump’s peace process in Ukraine. On the contrary, it is recording new historical highs and an increase of 11%.
In fact, shares of Rheinmetall, Rolls-Royce and Leonardo are among the biggest gainers since the start of the war. Many companies have already doubled their value in the last year due to the increase in defense spending. The defense and aerospace industry is estimated to continue to grow at a double-digit rate until 2026.
Markets rise despite peace talks
The latest developments regarding the peace talks in Ukraine initially brought turmoil to the markets. European listed defense and military industries started Thursday’s session with losses, as there was expectation that Donald Trump could broker a peace deal between Vladimir Putin and Volodymyr Zelensky.
However, the sector rebounded sharply in the middle of the session, as if it did not believe in the end of the war or as if it did not believe that this would entail a reduction in military spending. In fact, defense companies have recorded new historical highs.
Since the beginning of 2025, the 30 largest European companies in the defense and aerospace sector have increased by 11%, a figure that rivals the historic rise of the EuroStoxx 50, which has exceeded its high since the dot-com bubble.
On Wednesday, February 12, during the Wall Street session, Donald Trump revealed to the public that he had been talking to the Russian leadership to end the war.
This announcement affected American defense companies and initially caused European shares such as Leonardo, Rheinmetall and Thales to fall.
However, initial concerns about a market downturn quickly turned to gains, with Rheinmetall rising more than 7%, while Thales, BAE Systems and Leonardo followed with increases of 1.5% to 2%.
Peace does not necessarily mean a reduction in military spending
Trump’s peace initiative is still in its early stages, and there is no guarantee that ending the war will lead to a reduction in defense spending by major economies.
The US president has said in the past that Europe does not spend enough on defense, while countries such as Germany, France, Italy and Spain continue to arm and strengthen their military capabilities.
Defense Sector: One of the Fastest Growing in Europe
The defense sector continues to grow at an explosive pace. The Bloomberg Defense & Aerospace index has risen 36.4% over the past 12 months. Since the start of the Russian invasion of Ukraine, the sector has increased by 122%.
Many companies have doubled or tripled their market capitalization since 2022. Indicative examples?
Mildef – a technology company specializing in defense, Rheinmetall – a German company known for producing armored vehicles, but also Rolls-Royce – a British company that manufactures engines for fighter aircraft.
The rise in stocks is accompanied by increases in analysts’ forecasts for the companies’ target prices.
Although almost the entire defense sector is recommended as a “buy”, several companies no longer have significant room for growth.
This is according to the markets, which say that Leonardo and Rheinmetall, for example, have less than 6% upside.
Rolls-Royce, Dassault Systems and Thales are also expected to rise less than 9%, with price targets of £640, €176 and €42, respectively.
European companies with increased participation in defense
In addition to purely defense companies, other large European companies with defense activities also recorded gains:
Airbus – Leader in the aerospace industry, with significant contracts in the military sector.
Indra – Spanish company specializing in defense technologies and radar systems.
Indra is one of the few stocks that still has high upside, with a buy recommendation and a forecast rise of 40% to €28.8 per share.
Despite peace talks, the European defense sector shows no signs of slowing down. Defense spending in Europe and the US is expected to continue, ensuring that the industry maintains its momentum.
While some stocks appear to be approaching their target levels, the overall trend remains strongly bullish. This makes the defense sector one of the most profitable sectors on the European stock market. Especially now that the EU is proposing new defense spending…
