By Brian Swint

Defense stocks continued their meager comeback early Wednesday after President Donald Trump's recent promise to slash military spending. European defense firms are still outpacing them by some distance.

Big contractors Lockheed Martin, Northrop Grumman, and L3Harris have all lost more than 10% over the past month. They were rising 0.6%, 0.9%, and 0.1%, respectively, before the market opened. The exception is Palantir, the artificial intelligence darling that benefits from defense spending, which was falling 0.8% in the premarket--though it has gained 62% in the month on AI optimism.

It's a very different story in Europe, though. The Trump administration's rhetoric about pulling back from overseas military commitments, spending less on defense, and engagement with Russia to end the war in Ukraine has created a sense of crisis across the Atlantic. Investors expect countries to ramp up spending on fighter jets, tanks, and other equipment, bolstering the shares of the domestic companies that can build it.

Germany's Rheinmetall has been one of the biggest beneficiaries. It was rising 1.5% on Wednesday and has gained more than 35% in the past month. Thales, a French contractor that has some similarities with Palantir, was up 1.3%, and its one-month advance is greater than 20%. The U.K.'s BAE Systems was up 0.9% on the day after posting earnings Wednesday, and it's 10% higher than it was a month ago.

Of course, American companies may also get orders from Europe for new equipment, but probably not as many as firms closer to home. Traditionally, U.S. military spending has far outstripped its allies. Germany and France finally managed to get spending up to 2% of gross domestic product last year, the target set by the North Atlantic Treaty Organization after Russia annexed Crimea in 2014.

NATO Secretary General Mark Rutte said last week that the spending target may need to rise even higher.

Write to Brian Swint at brian.swint@barrons.com

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February 19, 2025 06:35 ET (11:35 GMT)

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