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Time to go aggressive on defence?

ended 03. March 2025

With European leaders in talks to build “a coalition of the willing” to support and defend the Ukraine if a truce with Russia is agreed, defence stocks are rallying - with one analyst calling them “the trade of the quarter”. Which stocks or funds, well known or lesser known, are likely to outperform if this rally grows?  

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Editor
Gabriel McKeown
Political & Economics Writer at Sad Rabbit - Substack Newsletter
European defence firms are riding a wave of investor enthusiasm as NATO members ramp up military spending, but the defence trade looks crowded, and late arrivals risk buying into a market that is already overheated. Despite military budgets expanding and NATO members preparing for a prolonged security crisis, share prices in the defence sector are already climbing and valuations have become stretched. The sector has outperformed broader indices, with share prices reflecting expectations of sustained military investment, so prospective investors should question whether the bulk of the gains have already been realised. Defence spending commitments take time to materialise into revenue, and increased orders do not always translate into immediate profit expansion. Despite the momentum, risks remain and while war and conflict can fuel short-term gains, peace agreements, shifting government priorities, and economic downturns have historically led to sudden reversals in the sector.