European Defence Stocks Investors Are Watching After Germany Election Shock

Germany’s latest regional election shock, with surging AfD support and a weaker showing for Chancellor Merz’s CDU, has pushed political risk back onto every investor’s screen. When policy uncertainty climbs, pricing can move faster than fundamentals. That creates chances both to back potential beneficiaries of higher defence and security focus and to sidestep possible losers. This article breaks down three European stocks that screens suggest could be positively exposed to these shifts.

The stocks covered below are a small sample of this theme, and the full screen highlights 65 more European defence and security companies with similarly detailed stories that are not included here. If you want to go straight to the source and identify your own ideas, head into the European defence and security stocks screener to filter, analyze, and focus on the highest-conviction plays.

Safran (ENXTPA:SAF)

Safran is a €138.3b French aerospace and defence group supplying engines, avionics, optronics and security systems that fit squarely with the European defence and security theme. Most revenue comes from propulsion at about €17.3b, with a further €13.5b from equipment and defence and €3.3b from aircraft interiors, giving it a broad role across both military and civil aircraft fleets. That mix gives Safran exposure to potential increases in European defence procurement alongside steady commercial aviation demand.

Safran provides exposure to European defence spending through engines, avionics and sensors that sit inside many of the aircraft and drones that could benefit if security budgets rise. Analysts see earnings momentum supported by guidance for mid teens revenue growth in 2026 and by projects in areas such as sustainable aviation fuel and hybrid electric propulsion, which could grow in importance as Europe pursues both security and decarbonisation. The catch is that the stock already trades on a rich P/E and relies heavily on external borrowing, so any setback in execution or defence budgets would be significant. For investors seeking exposure to this theme through a large, diversified player, Safran is a company worth examining more closely.

Safran’s revenue mix and guidance for mid teens growth in 2026 hint at a story that many investors may only be half seeing. Get the fuller picture and see what the analyst forecasts for Safran reveals about the next chapter.

Rheinmetall (XTRA:RHM)

Rheinmetall is a €48.3b German defence contractor focused on combat vehicles, weapons and ammunition, and electronic security systems, which positions it squarely within the European defence and security theme. Most revenue comes from Vehicle Systems at about €5.5b and Weapon and Ammunition at roughly €4.0b, with reported segment adjustments and consolidation effects reflecting internal eliminations rather than standalone businesses. That scale and focus on core defence hardware and security technologies make Rheinmetall a key reference point for investors looking at Europe’s rearmament story.

Rheinmetall gives you direct exposure to European rearmament, with armored vehicles, ammunition, air defence and electronic systems that link closely to government security budgets. Analysts highlight revenue and earnings growth expectations, high forecast returns on equity and a sizeable order pipeline supported by new joint ventures in missiles, unmanned ground vehicles and secure communications. The flip side is meaningful balance sheet leverage, reliance on European defence contracts and execution risk as it ramps capacity and integrates partnerships. For investors trying to make sense of how higher political risk in Germany and across Europe could feed into defence spending, Rheinmetall is a company worth understanding in more detail.

Rheinmetall’s order book, joint ventures and high forecast returns on equity suggest a story that many investors may be underestimating. Get the full context in the analyst forecasts for Rheinmetall and see what might be hiding behind the headline contracts.

Thales (ENXTPA:HO)

Thales is one of Europe’s key defence and security contractors, supplying air defence systems, radars, secure communications, cyber defence and digital identity tools that line up closely with the European defence and security stocks theme. The company generated about €13.3b from defence activities excluding digital identity and security, €6.1b from aerospace and €3.9b from cyber and digital, with smaller items grouped in other segments. With a market value of roughly €48.0b, Thales combines large scale defence exposure with sizeable positions in civil aerospace and cybersecurity. This gives you multiple ways to benefit if security and border-control spending stay in focus.

Thales gives you a rare combination of hard defence assets, such as air defence systems and radars, and digital areas such as cyber defence and identity that are closely connected to NATO and EU security priorities. Recent contract wins in air traffic management, military positioning and European radar programs show that governments continue to trust Thales with long duration, mission critical projects, even as H1 2026 earnings felt the impact of exceptional charges and bond-funded acquisitions. The company also carries higher financing and execution risk in its Cyber & Digital and Space activities, and relies heavily on government budgets, which makes political shifts worth watching. For investors who want to balance that risk against the characteristics of a large, diversified security business, Thales is a stock that may warrant a closer look.

Thales looks like a rare mix of hard defence kit and digital security, yet the real story may be how its cyber, space and financing risks interact. Walk through the analyst forecasts for Thales and see what that combination could really mean for the stock next.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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