European defense stocks are seen as best placed to take advantage of the growing push for military sovereignty on the continent, as concerns grow over President Donald Trump’s annexation of Greenland. Bernstein analysts named four companies that they expect will particularly benefit. NATO troops and ships, including French and German personnel, arrived in Greenland this week for military exercises, putting Europe’s security capabilities under new scrutiny. Bernstein analysts Adrian Rabia and Douglas Harned said U.S. defense companies still account for about 60% of European countries’ military spending. But as these countries increase their defense spending amid growing concerns about U.S. involvement in NATO, they tend to lean toward continental suppliers. BAE Systems, Dassault Aviation, Rheinmetall and Thales are particularly well-positioned to capture defense-led “sovereign Europe” trade, Bernstein said in a note Friday. Britain’s defense powerhouse BAE Systems, which makes a range of aircraft, weapons, munitions and warships, is up more than 21% so far in 2026, while Germany’s Rheinmetall, the continent’s largest defense company, has soared 23.7%. French fighter jet maker Dassault Aviation is up 14.8% since the start of the year, while French tech and aerospace giant Thales is up 13.8%. BA.-GB YTD Mountain BAE System. Overall, the Stoxx Europe Total Market Aerospace and Defense Index rose 14.5% over the same period. Defense spending in European NATO countries is expected to reach 2.8% of GDP by 2030, up from the current 2.3%. France remains the “most sovereign” European power in terms of defense and the world’s second largest arms exporter after the US, leaning more towards its own production capacity, while other countries such as the UK, Germany and Scandinavia remain heavily reliant on US-based suppliers. Denmark, currently embroiled in a war of words with the Trump administration over Greenland, has increased its military spending from 1.4% to 3.2% of GDP over three years, and quadrupled its equipment spending. But Bernstein said the company continues to buy drones, aircraft and missiles from the United States. RHM-DE YTD Mountain Line Metal. However, the latest order emphasizes Denmark’s pivot to European equipment providers and greater emphasis on local spending, and other NATO countries are expected to follow suit. Denmark recently placed large orders for combat vehicles from BAE Systems and Rheinmetall, while relying on Rheinmetall, Kongsberg and Thales for air defense systems. Bernstein said many other countries would “follow suit” as European governments try to play catch-up. Bernstein outlined the theme, saying European powers could offer political and military support in exchange for large orders, similar to what the United States has done. Analysts pointed to Norway’s recent £10 billion ($13.4 billion) naval order for BAE Systems. “We believe two basket stocks are well-positioned to seize the opportunity,” analysts said. First, European players with in-house capabilities and extensive government support, and second, local players from countries with strong US influence, they added, with Kongsberg and Saab being chosen in the latter group. “In theory, BAE Systems and Leonardo should be in a good position given Italy and the UK’s dependence on imports from the United States,” Rabier and Harned said. “We expect local contractors to capture most of the incremental spending and their share of equipment continues to grow, driving an addressable market CAGR of LDD% for European defense companies.” Raphael Tuin, head of capital markets strategy at Tikehau Capital, recently told CNBC that the depleted state of Europe’s military capabilities due to years of underinvestment is helping to drive a multi-year “megatrend” that is boosting the region’s defense stocks. — CNBC’s Michael Bloom contributed to this article.
