European defense shares posted strong gains on Monday after NATO Secretary-General Mark Rutte said the alliance’s growing military spending is stretching the capacity of defense manufacturers ahead of this week’s NATO summit in Ankara, Turkey.
Italy’s Fincantieri SpA (BIT:FCT) led the sector higher, jumping 12.84% to €12.30 by 08:30 GMT. Other major defense names also advanced, including Leonardo SpA (BIT:LDO), Saab AB (TG:SDV1), Indra Sistemas (TG:IDA), Hensoldt AG (TG:HAG), Rheinmetall AG (TG:RHM), Thales (EU:HO), Dassault Aviation SA (EU:AM) and Safran SA (EU:SAF).
NATO Shifts Focus from Commitments to Implementation
Speaking to The Wall Street Journal ahead of the summit, Rutte said NATO has entered a new phase in its defense spending programme.
“A year ago was all about promises” of additional military spending, he said. This year, “it’s about delivery,” reflecting the alliance’s focus on turning commitments into operational capability.
According to NATO, military expenditure by member states excluding the United States rose 20% last year compared with 2024, reaching $574 billion. Data from the Stockholm International Peace Research Institute showed Germany increased defense spending by 24% to $114 billion, with Berlin aiming to raise that figure to around $180 billion by 2029.
Production Capacity Becoming a Constraint
Rutte warned that the rapid increase in defense orders is putting significant pressure on manufacturers, noting that around $300 billion worth of weapons has already been ordered from U.S. suppliers.
“We are basically reaching the absorption-capacity level,” he said, identifying limited industrial production and difficulties recruiting and training military personnel as the two principal constraints.
U.S. Ambassador to NATO Matthew Whitaker also argued that Europe’s defense industry would benefit from greater consolidation, saying higher military budgets must result in additional equipment rather than higher costs.
Summit Expected to Generate New Defense Contracts
TD Cowen said this week’s NATO summit will focus on military spending, industrial production capacity and continued support for Ukraine, with U.S. President Donald Trump expected to press allies on burden-sharing and implementation of NATO’s target of spending 5% of GDP on defense.
The broker expects fresh investment announcements and new defense contracts linked to the summit, developments that could further support U.S. foreign military sales, which are already running at record levels.
TD Cowen also identified drones and counter-drone technologies as the most attractive area for future defense spending, citing a lasting shift in modern warfare and the growing need to protect critical infrastructure.
The NATO summit takes place on 7-8 July in Ankara, alongside a dedicated defense industry forum where officials are expected to announce new contracts, preliminary agreements and joint-production initiatives.
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