With NATO members committed to much higher defensive spending targets, certain companies are expected to significantly improve their European-based headquarters to the final boundary. At its annual summit last week, NATO announced that its members agreed to significantly increase their defence spending, with the majority of its 32 member countries pledging to spend 5% of its gross domestic product on defense by 2035. Antonio Albalenga, professor of strategy and entrepreneurship at the NOVA School of Economics in Portugal, said hiking in spending will see the government bring hundreds of millions of euros into military capabilities. “Specific sectors and businesses are ready to capture atrium profits, ranging from traditional platforms such as armored vehicles and naval vessels to emerging domains such as cybersecurity and infrastructure modernization,” he said in an email. CNBC spoke about where it can turn its money as a NATO country (the majority of it is also members of the EU), and its own promise to mobilize hundreds of millions of euros for defence spending. According to Rheinmetall Alvarenga, Germany’s Rheinmetall is well positioned to benefit from the inevitable European investment in land and aviation systems. Rheinmetall expects sales to rise by up to 30% this year, and the company has reported a sales jump of 73% year-on-year to the defense unit in the first quarter of 2025. According to LSG data, RHM-DE YTD line Rheinmetall stock price analysts currently expect the company’s full-year revenue to rise by 30% this year. “Rheinmetall has already traced Berlin and Neuss automotive plants for the production of Berlin turrets and ammunition, and has benefited from large orders of major combat tanks, self-propeller artillery and high-speed projectiles,” says Alvarenga. According to Alvarenga, Airbus, BAE systems and Leonardo Europe aircraft manufacturers could secure contracts for next-generation fighter upgrades, unmanned aerial systems and pilot training simulators. “If the nation tries to replace aging fleet, the procurement of dozens of multi-roll fighters could drive revenues of 100 million people over the next decade,” he told CNBC. Linus Terhorst, a research analyst in UK defense and security, has announced that Royal United Services Research analyst at the Institute told CNBC that European NATO members are likely to be looking to invest in improving infrastructure such as integrated air and missile defense, air refueling capabilities, deep precision strike systems, and railways and bridges. As for companies that can win a portion of that spending, Tellhorst noted that Europe has “a very limited landscape of some producers of these systems.” “So, you’re only looking at a handful of companies that can provide the precision capabilities of deep strikes, for example,” he told CNBC over the phone. “I mean, it’s going to be something like MBDA.” MBDA, a joint venture between France’s Airbus, UK BAE Systems and Italy’s Leonardo, manufactures missiles. “The increase in spending is very important. I think there will be investments in all areas of capacity,” Telhorst said. “Therefore, we confirm that the big primes in Europe are very likely to benefit from it across the various defense sectors, from land and air to oceans.” In a memo on Friday, Metzler analyst Stephen Bauer described Airbus as “one of the most preferred stocks in our coverage universe,” giving the company a “buy” rating, slightly increasing the price target to 198 euros ($232). This is a premium of about 11% of the current price. “I think it’s pretty difficult to find an industrial company that offers revenue growth and FCF profiles that are as exciting as Airbus,” they said. Rolls-Royce Nova’s Alvarenga agreed that the European government would also pour funds on regional maritime troops, especially frigates, corvettes and support vessels. There is evidence that some of these investments have already happened. For example, last week, Italian Fincantieri signed a contract worth 700 million euros ($820 million) for the construction of two multi-purpose contract vessels to join the Italian Navy’s fleet. “These shipbuilding programs not only employ thousands of skilled workers, but also create demand for steel, marine electronics and propulsion systems. Suppliers such as Wärtsilä and Rolls-Royce (Marine Division) may enjoy ripple effects,” says Alvarenga. Rolls-Royce already looks attractive to some market watchers as it appears poised to win profits from another growing pocket in the European market. Earlier this month it was announced that Rolls-Royce has been selected to build the UK’s first small modular reactor. After the announcement, Deutsche Bank hiked 8.7% of the price target for the UK aerospace company, saying that the nuclear deal boosted the company’s mid-term outlook. “The UK SMR program estimates it will donate 16p to the Rolls-Royce stock price, and expects the global SMR market to be substantial. “Security-related” spending recipient Nova Alvarenga told CNBC that NATO’s “security-related” spending could cover everything from cybersecurity to AI platforms. “Thales, a longtime defense electronics leader, along with emerging specialists such as Aliter Technologies and Cybexer, will compete for contracts to strengthen its national network, develop automated threat detection suites, and deploy secure cloud infrastructure,” predicted Alvarenga. “On the US side, companies such as Palo Alto Networks and CrowdStrike can expand their footprint in Europe by providing managed detection and response services under the newly funded NATO program.”
