Shares in BAE Systems PLC (LSE:BAE) climbed 5.5% on Monday following heightened tensions in the Middle East over the weekend, with JPMorgan analysts identifying the UK defence contractor as one of the companies best positioned to benefit from a potential increase in U.S. defence spending.
In a research note, JPMorgan said the European defence sector could see further gains amid ongoing geopolitical conflicts and expectations of higher military budgets in the United States.
The bank highlighted comments from President Trump in January 2026 indicating plans to raise the U.S. defence budget by as much as 50% in fiscal 2027, although JPMorgan considers a rise of around 20–30% to be a more realistic scenario.
Analysts said the accelerating pace of U.S. military operations during 2026 is increasing pressure on policymakers to boost defence expenditure. BAE Systems derives roughly 44% of its revenue from the U.S. defence market — the highest exposure among European defence companies covered by JPMorgan.
JPMorgan also pointed to the need for the United States to replenish missile inventories following recent military activity. Media reports from June 2025 suggested the U.S. deployed between 15% and 25% of its total THAAD interceptor stockpile during a 12-day conflict, using approximately 100 to 150 interceptors from an estimated inventory of around 650 units.
BAE Systems supplies the infrared seeker component used in the THAAD missile guidance system, with JPMorgan estimating the company generates about $1 million in revenue per THAAD unit.
Other UK-listed defence companies also traded higher on Monday. Babcock International Group PLC (LSE:BAB) rose 0.9%, while Qinetiq Group PLC (LSE:QQ.) gained roughly 3% as of 11:00 GMT.
JPMorgan additionally highlighted several European defence firms with meaningful exposure to the U.S. market, including RENK Group AG (TG:R3NK) with around 25% exposure, Leonardo SpA (BIT:LDO) at approximately 23%, and Qinetiq Group PLC at about 18%.
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