European defence stocks are the new magnificent seven, says eToro, which notes a basket of seven European defence stocks – BAE, Rolls-Royce, Rheinmetall, Thales, Dassault Aviation, Safran and Leonardo – is up 46 per cent in 2025, 68 per cent over the last year, and 268 per cent over the past five years.
The “European defence seven” has beaten the US’s magnificent seven and generated five times the returns of the S&P 500 over the past year.
Investor appetite is evidenced in the launch of WisdomTree’s Europe Defence fund, the first ETF to focus solely on European defence names.
Money has flooded into other European defence ETFs like VanEck’s Defense ETF (DFNS) and HANetf’s Future of Defence ETF (Nato), although both DFNS and Nato are also exposed to US defence companies.
Sceptics might caution that thematic ETFs often launch near the peak of an overvalued theme. There certainly has been, says Barclays, an “element of euphoria” among European defence stocks, with any progress towards a truce in Ukraine likely providing an “excuse for profit-taking”. The sector now trades at 21 times estimated earnings, a record high premium since the 1990s.
While “frothy”, Barclays is long-term bullish. Yes, there have been huge gains since Russia invaded Ukraine in February 2022, but they remain “far from the average peak” seen in previous market hypes.
Defence stock gains reflect higher earnings (up 50 per cent since February 2022) as well as higher valuations. Barclays estimates additional European defence spending of $140 billion in coming years, or 110 per cent above current levels. About 60 per cent earnings growth is currently priced in.
Barclays’ take: the European defence earnings supercycle will accelerate; buy the dips.
