Both Citigroup and J.P. Morgan emphasize that in a rearmament cycle, transoceanic systems-level defense giants focusing on air and missile defense, precision-guided munitions, sensors/radars, and command, control, and interception systems tend to benefit first.
Recently, global defense and military stocks have experienced significant short-term declines. J.P. Morgan released a research report noting that this presents an opportunity to buy the dips in a high-growth sector. The firm believes defense stocks are suitable for “buying on any pullbacks” and bases its bullish outlook on a “multi-year global rearmament upcycle.” The new upward trajectory in global defense spending is likely still in its early stages and could persist for “another decade.”
J.P. Morgan senior analyst David Perry offered this advice following a drop in defense stocks after former President Trump’s speech at the Davos Forum. Trump stated he did not want to use excessive military force for Greenland, causing a widespread decline in the global defense sector. Some analysts viewed this as a signal of cooling geopolitical tensions. Subsequently, Trump mentioned that after meeting with the NATO Secretary General, a “territorial and military framework” regarding Greenland had been formed.
“We continue to advise investors to buy European defense stocks on weakness,” Perry stated. “We are in the very early stages of a new global defense spending upcycle, or ‘international rearmament,’ which could last another decade or so.”
European defense stocks were a highlight in European equities in 2025. However, after significant gains, military stocks have become increasingly sensitive to geopolitical news, primarily due to market jitters amid high valuations.
Data shows a wave of defense investment sweeping equity markets. U.S. aerospace and defense stocks are up 36% year-to-date in 2025, while the European counterpart sector has surged 60%, even outperforming the U.S. semiconductor sector’s approximately 45% gain. This is largely due to Germany and continental Europe’s desire to rearm Europe following Trump’s announcement of focusing U.S. defense construction domestically.
Citigroup’s bullish stance on defense stocks aligns with J.P. Morgan’s. Its research report states the “international rearmament” trend is set to become a structural, multi-year main theme driving global defense demand. It predicts the defense sector will remain a hot theme in global equity markets for the next 2-3 years and could become a core driver of market gains.
Both Citigroup and J.P. Morgan note that the U.S. defense giant Raytheon Technologies (RTX), with its significantly higher international revenue and order exposure compared to peers like Lockheed Martin, is poised to be a core beneficiary within the international defense sector. Citigroup emphasizes that Raytheon’s relative exposure to international business and order structure is more pronounced than its peers. It directly links this advantage to trends such as NATO’s substantially increased defense spending targets, potential EU spending boosts, and the acceleration of defense exports and joint production.
