across the region as geopolitical tensions remain high. The bank’s analysts see companies like Rheinmetall, Leonardo, and BAE Systems as key winners in this shift.
At the recent Munich Security Conference, European leaders made it clear they want to strengthen their defense capabilities and reduce reliance on the U.S. NATO countries are now discussing raising defense spending targets beyond 3% of GDP, a move that could give European defense firms a major boost.
Morgan Stanley analysts believe these policy changes will keep demand high for military equipment and security services. A big driver of this shift is the growing concern that U.S. support for Ukraine and European security might weaken in the future. This concern was reinforced by U.S. Vice President J.D. Vance’s speech at the conference, which noticeably avoided direct references to the Russia-Ukraine conflict.
As European governments ramp up their defense efforts, they’re expected to place more orders for armored vehicles, air defense systems, and artillery. Financial commitments to defense are becoming more concrete, with ongoing discussions about joint procurement, the possibility of a European army, and expanded security agreements.
Among Morgan Stanley’s top picks is Rheinmetall, known for its strong foothold in supplying armored vehicles and ammunition. The German defense firm has already landed significant government contracts and stands to benefit from increasing defense budgets. Leonardo, the Italian aerospace and defense company, is also recommended due to its deep involvement in both European and NATO projects. Meanwhile, BAE Systems remains a solid choice, backed by the U.K.’s ongoing military modernization efforts.
Although short-term volatility is possible due to geopolitical uncertainties, Morgan Stanley remains confident in the sector’s long-term strength. With European governments making security a top priority and defense spending on the rise, the investment bank sees strong potential for growth in the region’s defense industry.
