European defense stocks have experienced a sharp decline, highlighting the tension between market expectations and the reality of ongoing conflict in Eastern Europe. Major suppliers of tanks, fighter jets, and artillery, including Rheinmetall, Renk, Leonardo, Hensoldt, Babcock International, Saab, Thales, and BAE Systems, collectively lost over $15 billion, or 5% of their combined market value, in a single day.
Germany’s Renk, a manufacturer of tank gearboxes, and Italy’s Leonardo, known for helicopters and surveillance systems, each saw declines of around 8%. At first glance, such drops could be interpreted as a signal of diminishing demand for military hardware, potentially hinting at progress toward peace talks.
The timing coincided with diplomatic meetings involving U.S. President Donald Trump, Russian President Vladimir Putin, Ukrainian President Volodymyr Zelensky, and other European leaders. However, these discussions produced no concrete security guarantees for Ukraine and no indication that Russia is prepared to consider a ceasefire. Analysts caution that market fluctuations reflect investor sentiment more than real-world developments.
Valuations of European defense firms remain exceptionally high, trading at more than 30 times their 12-month earnings—nearly double their five-year average. This positions them alongside major tech companies like Microsoft and Nvidia in terms of stock market valuations. Citigroup analysts have noted that some firms would need to increase operating profits four to fivefold over the next decade to justify current share prices, far exceeding expected defense budget growth.
Ultimately, while recent stock movements may appear linked to peace hopes, they more accurately reveal investor expectations of rising European defense spending rather than a genuine resolution to the ongoing conflict.
