European defense is turning caution into a hot ticket
The CEO of Dassault Aviation (CBOE: AM)—the French maker of military fighter jets and business aircraft—painted a cautious picture earlier this month, saying that potential new US tariffs had added a level of uncertainty to its latest forecast. The company’s business is booming, however, and the broader European defense industry is emerging as one of the biggest possible beneficiaries of a realigning world order.
“The idea is to replace a less-reliable American umbrella with a stronger European one,” Éric Trappier said in an interview with Boursorama, referring to French President Emmanuel Macron’s calls for the region to increase defense spending to more than 3% of GDP amid ongoing pressure from the administration of US President Donald Trump. That, along with the threat of tariffs, seems poised to lift a handful of firms that could step up to meet European demand from within Europe, even as broader international markets sell off.
“Investor confidence has grown as geopolitical dynamics shift,” Trappier continued. “With diminishing US dependence, investors see European—and especially French—defense companies as solid long-term bets.”
Indeed, Dassault Aviation shares have risen nearly 60% year-to-date, while the S&P 500 declined 4.6% and the EURO STOXX 50—which tracks major Eurozone blue-chip companies—rose 9.5%. Over the same period, shares in French aerospace defense firm Thales SA (CBOE: HO), Sweden’s Saab AB, Germany’s Rheinmetall (CBOE: RHM) and Italy’s Leonardo S.p.A. (CBOE: LDO) surged 81%, 77%, 95% and 75%, respectively.
The iShares US Aerospace & Defense ETF, which holds US aerospace and defense equities, has gained 2% this year, exemplifying just how much the European competitors have been outperforming their American peers.
Dependence is hard to shake
Despite market optimism for the European cohort, the devil will still be in the details. Trappier said 55% of Europe’s defense imports currently come from the US, and a shift won’t likely happen overnight. He said that individual countries in the region will need “willpower” to change market preferences and structures.
“True European preference needs political will and strategic coherence,” Trappier said. “Trump clearly wants Europe to carry more defense responsibility, as seen in Ukraine. Europe’s willingness and capability to fill the void left by reduced American support remain uncertain.”
Underscoring just how difficult it might be to reduce defense imports from the US, the Stockholm International Peace Research Institute said this week that Europe’s NATO members have actually been increasing their reliance on American products despite efforts to reduce the dependence.
“The transatlantic arms-supply relationship has deep roots,” SIPRI Arms Transfers Programme senior researcher Pieter Wezeman wrote in a report. “European NATO states have almost 500 combat aircraft and many other weapons still on order from the US.”
Order backlog builds up
Dassault Aviation, for its part, had already been seeing big sales gains even before the latest round of geopolitical positioning kicked off in earnest earlier this year. In 2024, the company saw order intake rise to 10.9 billion euros from 8.3 billion euros a year earlier on the success of its Rafale fighter and Falcon business jet programs. It currently has a backlog of 299 planes compared to 295 a year earlier, which will help ensure solid results this year but also limit any major surprise upside amid ongoing supply chain challenges.
While the company is well positioned to benefit from any uptick for its products from within Europe, it also has an ace up the sleeve that can protect it from tariffs, should they emerge: much of its business jet production already happens in the US. “A significant portion—around half—of Falcon work, particularly interior completions, occurs in Little Rock, Arkansas, mitigating some of the impact,” Trappier said.
Dassault Aviation, in other words, is well prepared to prosper on both sides of the Atlantic, even if geopolitical and trade tensions keep ratcheting up. The question now is if Europe’s other big defense companies can also live up to the great expectations rising.
