European defense stocks and long-term defense spending supercycle, Digi Mart USA News (France): Defense stocks such as Thales and Dassault Aviation have surged on the stock market since 2022, following the outbreak of the war in Ukraine and the launch of historic military investment plans in Europe, particularly in Germany and the European Union. Other major powers, including Japan, the United States and China, have also been boosting already massive defense budgets.
Yet European defense shares have not performed strongly since the mid-January 2026 peak, a underperformance that could currently offer investment opportunities in certain stocks in the sector. Morningstar says defense has gradually established itself as one of the major investment themes on the stock market, noting that defense spending is still in the early stages of a long-term supercycle, driven by NATO commitments and efforts to strengthen military capabilities after several decades of underinvestment.
Morningstar says Europe’s rearmament could generate up to $3 trillion in equipment spending over the next decade, creating a significant long-term opportunity for industrial companies in the sector and for stock market investors. The investment research and financial data analysis firm also points to attractive entry points in defense stocks, particularly European ones, following the recent decline in the sector’s share prices on the European continent.
For investors, Morningstar argues that the question is no longer whether governments will increase defense spending, but how that spending will be allocated. The firm says many companies benefit from rising order books, favorable long-term demand trends and valuations that appear attractive relative to its fair value estimates.
However, it cautions that individual defense stocks can perform very differently, noting that Rheinmetall shareholders have seen the share price fall nearly 47% since the start of 2026 as of the time of writing. Morningstar warns that individual defense shares can offer substantial upside but may also be highly exposed to specific contracts, programs or public spending decisions.
Morningstar suggests that thematic defense funds, including ETFs and conventional mutual funds, can offer broader exposure to different companies, technologies and national budgets and reduce the risk associated with holding a single defense stock. The article also notes that Capital’s Momentum newsletter has recommended defense stocks including Dassault Aviation, Thales, Exosens, Exail Technologies and Lumibird since 2021, with Exail Technologies’ share price rising nearly eightfold since its 2024 buy recommendations.
