Global officials gathered in Munich, Germany, over the weekend for the Munich Security Conference, with talk focused on defense spending and the war in Ukraine. European officials appeared to signal a willingness to ramp up spending following pressure to do so from U.S. President Donald Trump. EU Commission President Ursula von der Leyen said defense spending could be exempted from the bloc's fiscal rules, while NATO chief Mark Rutte said the alliance would raise its spending targets to "at least" 3% . Defense stocks in Europe soared on Monday , with the Stoxx 600 Aerospace and Defense Index hitting a record high. Analysts at investment bank Citi said the European defense sector would get a major boost if NATO member states — the majority of whom are European — committed to raising spending targets from 2% to 3% of GDP. "We estimate potential sector upside of 30%, at 3% of GDP (lower than the implied 50% increase due to time value of money)," the analysts said in a note on Monday, naming several defense stocks that were poised to benefit from such a shift. Hensoldt Among the companies highlighted by Citi was German defense tech firm Hensoldt . Shares of the Taufkirchen-based firm are up around 33% so far this year, with the company's stock gaining over 12% on Monday in the wake of the Munich Security Conference. The German government owns 25% of the company's shares making it the firm's biggest individual shareholder. Based on its estimates, research and the company's own reporting, Citi said Hensoldt's European sales exposure was as high as 86%. In a separate note on Monday, analysts at Germany's Mwb Research upgraded their price target for Hensoldt to 45 euros ($47.12) per share from 43 euros per share, but downgraded the stock from a buy to a hold. Mwb's Jens-Peter Rieck said in the note that in 2024, EU and Canadian defense investments surged to 462 billion euros, with European NATO members contributing 326 billion euros. "Hensoldt has benefited from this trend, securing around 0.7% of European NATO defense spending," he said. "However, long-term growth prospects beyond 2030 are uncertain due to reliance on existing platforms and increasing competition." Saab, QinetiQ, Babcock Citi's analysts also named Swedish defense manufacturer Saab , British defense group QinetiQ and aerospace firm Babcock , which has been contracted by the U.K. government to service Ukrainian military equipment on the frontlines of the country's war against Russia. All three companies' shares saw gains on Monday as investors reacted to geopolitical news out of Europe. Citi noted that the companies it named were exposed to different countries across Europe, some of which are poised to ramp up spending at a faster pace than others. "It's important to recognise there is regional nuance within Europe," the bank's analysts explained. "A country such as Sweden (to which Saab has [around] 40% sales exposure) is growing defense spending at a much higher rate (and from a lower base) than a country like the U.K. (to which QinetiQ and Babcock have the highest exposure)." U.S. defense stocks also expected to benefit Meanwhile, analysts at JPMorgan said in a note to clients on Friday that every 50-basis-point change in European NATO members' defense spending amounted to a monetary difference of around $115 billion. It named a number of U.S. firms with European exposure set to benefit. "If we assume 40% [of increased defense spending] is for equipment and that U.S. contractors might be able to account for 30% of that, then the increase in addressable market for U.S. contractors over several years would be [approximately] $15 billion," they said. American defense giants Lockheed Martin and RTX-owned Raytheon are among those positioned to benefit, JPMorgan said, with Europe accounting for 11% of sales at both firms. It also named Northrop , General Dynamics and Boeing (exclusive of its commercial planes division) as U.S. defense companies with significant revenue exposure to Europe. "Growing European defense spending should represent an opportunity for U.S. contractors, given that they have well-established relationships within the NATO alliance," the investment bank's analysts said. "Also, the U.S. may push Europe to buy more U.S. goods as part of its trade agenda and weapons could play a role here."
