Article by Edward Sheldon
4 Powerhouse European Defense Stocks to Watch in 2026
March 11, 2026 | Research Insights
War Fears Lift Gold but Strong Dollar Caps Gains
The European defense industry is booming right now. Fueled by extreme levels of geopolitical instability, huge increases to NATO defense budgets, and a drive for strategic autonomy within Europe, revenues and backlogs are skyrocketing.
In this blog, we are going to highlight four European defense stocks that are not just riding this industry momentum but defining it. From German titan Rheinmetall to British nuclear specialist Rolls-Royce, here are some European defense stocks to watch as Europe enters its most significant military modernization since the Cold War.
Rheinmetall: A European Defense Heavyweight
When it comes to European defense stocks, it’s hard to ignore Rheinmetall. Renowned for its dominance in heavy weaponry and munitions, it’s one of the largest defense companies in Europe. With operations spanning five specialized divisions – Vehicle systems, Weapon and ammunition, Air defense, Digital, and Naval – it offers solutions for nearly every domain of modern warfare. From drone defense systems to electronic warfare systems, it has cutting-edge products designed to help countries protect themselves.
One line of products that Rheinmetall is having success with today is the Skyranger family of air defense systems. These are mobile ground-based air defense (GBAD) systems designed to counter drones, helicopters, and cruise missiles. In recent years, a number of European countries including Germany, Austria, the Netherlands, Hungary, and Denmark have purchased Skyranger systems1 while several other countries including the Czech Republic and Lithuania have shown interest in them. Note that in December 2025, Rheinmetall received an order from the Dutch Ministry of Defense to supply a two-digit number of Skyranger systems for the Dutch armed forces – this order was in the “high triple-digit” million euro range2.
Source: Rheinmetall Closing Gaps Presentation, as of Nov. 18, 2025
With European countries scrambling to top up their ammunition stockpiles, Rheinmetall is also seeing high demand on this side of the business. It produces a broad range of different products here and is rapidly expanding its production capacity to meet the unprecedented surge in demand. Note that by 20273, it is aiming to produce 1.1 million 155mm artillery shells annually, up from 70,000 in 2022. Looking further out, by 2030, it is targeting production of 1.5 million 155mm shells.
In terms of financials, Rheinmetall’s Q4 20254 report showed sales of €9.9 billion for 2025, up 29% year over year. Operating profit for the period was €1.8 billion versus €1.4 billion a year earlier. At the end of 2025, the company had an order backlog of €64 billion. This year, the company expects sales to grow 40-45%.
BAE Systems: The UK’s Largest Defense Company
Known for its nuclear submarines, BAE Systems is the UK’s largest pure play defense company. Today, it operates in over 40 countries and employs more than 110,000 people. Like Rheinmetall, it is a vertically integrated defense powerhouse with multi-domain expertise. Its divisions include Air, Sea, Land, Cyber, and Space.
BAE Systems is seeing strong growth in its order backlog at present. One recent deal worth highlighting was an order for 20 Typhoon aircraft, along with an associated weapons package, from the Turkish government5. This deal – made between Turkey and the UK – is anticipated to be worth £4.6 billion to the defense company and will sustain Typhoon production in the years to come. Another major deal announced recently was a $1.2 billion contract to provide the US Space Force with space-based missile tracking capabilities via a constellation of satellites6.
In 2025, BAE Systems generated sales of £30.6 billion, up 10% year over year, along with underlying earnings before interest and tax (EBIT) of £3.3 billion, up 12%7. Total orders for the year amounted to £36.8 billion. At the end of the year, the group’s backlog stood at £83.6 billion. Looking ahead, the company has said that it expects a “new era” of defense spending to drive growth for years to come.
Rolls-Royce Holdings: A UK Profit Machine
Another British company that is active in the defense space – and having a considerable level of success at present – is Rolls-Royce Holdings. It produces engines for a range of air combat vehicles and ships as well as nuclear propulsion solutions for submarines.
Rolls-Royce’s 2025 results showed strong momentum in its defense division. Revenue for the year amounted to £4.8 billion, up 8% year over year, while operating profit was £689 million versus £644 million a year earlier8. At the end of the year, the company had a backlog of £17.4bn – equivalent to more than three years of revenue. The book-to-bill ratio for 2025 was 1.1x, signaling that the company is receiving orders faster than it is currently completing them.
In its annual report, Rolls-Royce noted that it is seeing growing demand for its EJ200 engines, which power Eurofighter Typhoon aircraft. Thanks to recent Eurofighter orders from Italy, Germany, Spain, and Turkey, it now has visibility of EJ200 production into the 2030s. It also said that it is seeing strong order intake for new programs such as the MV-75, which will support revenue growth from the late-2020s. The MV-75 is the official US Army designation for the Bell V-280 Valor, a next-generation tiltrotor aircraft designed to replace the aging Sikorsky UH-60 Black Hawk fleet.
One thing that separates Rolls-Royce from other European defense names is that the company is currently undergoing a major transformation program designed to boost profitability. Initiated by CEO Tufin Erginbilic in 2023, this is proving to be very effective. In 2025, group operating profit was £3.5 billion versus £2.5 billion in 2024. In the medium term, the company is targeting operating profit of £4.9 billion to £5.2 billion as its transformation continues.
Saab: An Under-the-Radar Swedish Defense Stock
Swedish aerospace and defense company Saab (Svenska Aeroplan Aktiebolaget) is a more under-the-radar European defense name. Once known for its quirky, turbocharged passenger cars, this company has evolved into a global leader in high-tech solutions for modern warfare in recent decades. Today, its focus is on air, land, and sea defense solutions. Its products include fighter jets, mobile radar systems, submarines, and underwater drones.
Saab’s flagship product is the Gripen aircraft. This is a "smart" fighter jet featuring cutting-edge electronic warfare technology. In 2025, the company secured several large orders for these planes, including a €3.1 billion deal from Colombia for 17 Gripen E/F fighter jets9. It is also having success with other products such as the GlobalEye, a highly advanced airborne early warning and control (AEW&C) aircraft that provides multi-domain surveillance, and the Giraffe radar, a family of mobile radar systems used for air defense and detecting incoming mortar or rocket fire.
Like other European defense companies, Saab is currently experiencing a growth super-cycle as European nations rush to replenish stockpiles, modernize their technology, and develop their own defense supply chains. In 2025, order bookings increased 74% to reach a record SEK 168.5 billion (approx. USD $19 billion), pushing sales up to SEK 79.15 (USD $8.7 billion) versus SEK 63.75 (USD $7.0 billion) a year earlier10. At the end of 2025, it had an order backlog of SEK 274.5 billion (USD $30 billion).
European Defense Stocks: Balancing Risk and Reward
From ammunition to orbital infrastructure, the European defense market is currently experiencing a period of unprecedented expansion. Driven by evolving security requirements, the industry is seeing significant investment across all domains. Of course, every stock in this industry has its own risks and there are no guarantees that investment returns from the four individual companies mentioned above will be positive in the years ahead. So, taking a diversified approach to the sector could be smart.
Footnotes:
1Global Defense News, Rheinmetall to begin Skyranger 30 deliveries to strengthen European air defense capabilities, as of Aug. 27, 2025
2Rheinmetall, Major order from the Netherlands: Rheinmetall to supply Skyranger 30 for mobile air defence, as of Dec. 12, 2025
3Rheinmetall Closing Gaps Presentation, as of Nov. 18, 2025
4Rheinmetall, Rheinmetall drives expansion forward and stays on course for success, as of Mar. 11, 2026
5BAE Systems, Contract agreed with the Republic of Türkiye for Typhoon aircraft, as of Oct. 27, 2025
6BAE Systems, BAE Systems awarded $1.2 billion contract for U.S. Space Force missile warning and tracking satellite system, as of Jun. 5, 2025
7BAE Systems, 2025 full year results, as of Feb 18, 2026
8Rolls-Royce, ROLLS-ROYCE HOLDINGS PLC – 2025 Full Year Results, as of Feb. 26, 2026
9Airforce Technology, Saab to deliver 17 Gripen E/F jets to Colombia under $3.6bn deal, as of Nov. 17, 2025
10SAAB Annual Report 2025, as of Mar. 3, 2026
Author is a contractor of Leverage Shares LLC, a U.S. affiliate of Themes Management Company LLC. Leverage Shares LLC provides certain services to Themes under an intercompany services agreement.
