Leonardo (BIT:LDO) and the wider defence sector remained firmly in focus across European markets on Thursday, following comments from Donald Trump signalling his intention to significantly raise US defence spending.
Shares in the former Finmeccanica group surged at the open in Milan, jumping more than 4.5% to move above €60 per share, setting a new all-time high after only reaching a previous record of €57.36 the day before. The rally marked Leonardo’s sixth consecutive session of gains, taking the stock up more than 20% over just a few trading days.
Buying interest spread across Milan’s defence names, with Fincantieri (BIT:FCT) trading around €20.10 to rank among the strongest FTSE MIB performers after Leonardo, while Avio (BIT:AVIO) also advanced by about 1.2%.
The positive momentum extended across Europe. BAE Systems (LSE:BA.) rose around 6%, while Germany’s Renk (TG:R3NK) gained roughly 4% and Rheinmetall (TG:RHM) climbed about 3%. Elsewhere, Kongsberg (TG:KOZ1), Dassault Aviation (EU:AM), Saab (BIT:1SAAB) and Hensoldt (TG:HAG) all posted gains of between 2% and 2.5%.
Trump has called for a 50% increase in annual defence spending, a move that could lift the budget to around $1.5 trillion by 2027. He framed the proposal as central to achieving what he described as a “Dream Military,” one he believes would be the most powerful and technologically advanced force globally.
A major pillar of the proposal is investment in advanced technologies. Trump stressed that additional funding should be channelled into new weapons systems, missile defence and cyber capabilities, with the aim of ensuring the US military remains ahead of potential adversaries. The scale of the proposed increase, however, has raised broader questions about its longer-term implications.
On the corporate side, Bank of America reiterated its buy rating on Leonardo shares on Wednesday, while trimming its price target slightly to €62.60 from €63 ahead of the group’s quarterly update and preliminary 2025 results due on 24 February.
Despite signs that a ceasefire between Russia and Ukraine may now be closer than at any point in the past four years—prompting some investors to consider taking profits—Europe’s defence sector continues to attract support from analysts.
Bernstein remains constructive, arguing that geopolitical developments do not materially alter the long-term spending outlook. “Regardless of the situation in Ukraine, we believe the outlook for military spending remains unchanged: Europe needs to rearm,” the broker said. It added: “We believe the sector will tactically recover from the correction and move into a second phase of the European cycle, where performance will be determined by increased exposure to countries and segments.”
Bernstein continues to view Rheinmetall as its top sector pick, citing Germany’s defence spending plans and the company’s geographic proximity to Russia. The broker also upgraded Thales to outperform and reaffirmed its outperform stance on Leonardo. In contrast, BAE Systems and Dassault Aviation were downgraded to market-perform, while TKMS was upgraded to market-perform after post-IPO weakness brought the valuation back to what Bernstein considers fair.
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