Investor Sentiment Toward Defence Stocks Is Extremely Bullish

Since Russia’s invasion of Ukraine, Europe’s defence sector index has vastly outperformed the broader market. European defence equities saw a “blistering rally” in 2022–2023 and continue to climb in 2025. The STOXX Europe Total Defence index is up ~40% year-to-date (early May), and key constituents have hit all-time highs. Germany’s Rheinmetall , for instance, saw its market cap soar to ~€39 billion – about 10× its valuation in early 2022. Its stock jumped over 160% in 2022 and kept rising, pricing in the multi-year demand for tanks, ammunition, and air defence.

Italy’s Leonardo and France’s Thales similarly have roughly doubled from pre-war levels. Even traditionally slow-moving names like BAE Systems (UK) are up strongly (BAE +24% YTD as of May), buoyed by thick order books. This exuberance is fueled by hard fundamentals: companies are reporting higher profits and guiding upward. For example, many European primes have upgraded their 2023–2025 earnings forecasts, and the sector’s average operating margin is expected to rise, as noted , by over a full percentage point. Market sentiment is also buoyed by the expectation of long-term budget stability – investors now view defence as enjoying a secular upswing, not just a one-off war bump.

They see Europe’s commitment to rearm as enduring (given geopolitical tensions that could last a decade or more), which underpins the case for high valuations. As a result, defence stocks trade at premium multiples relative to historical norms. For instance, Dassault Aviation and Saab are now valued not far from tech stocks in P/E terms, reflecting growth investor interest. Another aspect of sentiment: fear of missing out (FOMO). Fund managers who underweighted defence during the rally underperformed their benchmarks (the sector’s weight in indexes has grown with its market caps), so some are buying simply to avoid further underperformance.

However, this optimism comes with volatility – any signs of peace or budget cuts can cause sharp pullbacks. So far, though, dips have been met with eager buying.