NATO Crisis Pressures European Defense Stocks: Rheinmetall, Thales and Leonardo Under Review

European defense stocks are coming under massive pressure in April 2026 due to a combination of NATO uncertainty and trade policy developments. Rheinmetall, Leonardo and Thales are recording significant price losses following speculation about a possible US exit from NATO and an agreement between Washington and Brussels on a tariff deal encompassing extensive weapons procurements.

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Political Uncertainty Overshadows Fundamentals

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The Rheinmetall share shows volatility: Following a share price increase of nearly ten percent as part of a short-term recovery attempt, another setback followed. TKMS, the submarine builder, also recorded significantly stronger gains in the interim but was unable to sustain them. "The political hurdles" for the European defense industry remain considerable, as market observer Jim Reid from Deutsche Bank notes.

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Uncertainty surrounding NATO's future and negotiations between the USA and EU over tariffs – which also encompass substantial weapons procurement volumes – are weighing on the entire European defense sector on the stock market. Investors fear that European manufacturers could lose market share if there is increased orientation toward American weapons systems.

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European Rearmament Accelerates

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Despite current pressures, the fundamental outlook for European defense companies remains robust. Germany has achieved the NATO two-percent target for defense spending. According to EU data, 31 percent of total defense spending went to defense investments – the highest value ever recorded. Forecasts suggest that this share increased further in 2025.

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European NATO allies and Canada together recorded growth of 17.9 percent in defense spending. This development has been accelerated by the increased importance of NATO since Russia's attack on Ukraine. The massive budget increases generally create a favorable environment for defense companies – provided the contracts actually go to European manufacturers.

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Rheinmetall: Undervalued Despite 22 Percent Gain

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Rheinmetall recorded sustained strong share price performance through March 2026 and gained 22 percent since the beginning of the year. Despite this increase, Morningstar rates the stock with four stars as undervalued. The average EBITDA estimate for Rheinmetall stands at €3.3 billion – 62.88 percent higher than the EBITDA of the last twelve months. The highest analyst estimate even reaches €3.9 billion.

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The Düsseldorf-based group is considered the main beneficiary of European rearmament. The global security situation and increased defense budgets support operational development. Current share weakness reflects less fundamental problems than political risks.

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Leonardo and Thales Under Pressure

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Leonardo, the Italian defense company headquartered in Rome, has manufacturing facilities not only in Italy, but also in Germany, France, Poland, the United Kingdom and the USA. This international setup offers basic advantages but does not protect against current uncertainties in transatlantic relations.

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France-based defense company Thales is also suffering from geopolitical tensions. Like Rheinmetall, both companies are affected by the question of whether European governments will prioritize domestic or American manufacturers in their massively expanded procurement programs.

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Outlook: Fundamentals Versus Political Risks

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European defense stocks are caught in a tension: On one hand, record investments in European defense and rapidly growing budgets. On the other hand, NATO debates and trade policy developments are unsettling investors.

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For investors, the question is whether the current share weakness represents a buying opportunity or whether political risks are more sustainable in nature. The valuation of Rheinmetall as undervalued despite already strong share gains suggests that at least some analysts weight fundamental strengths more highly than short-term political uncertainties.

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The coming weeks should be decisive: Specific procurement decisions by European governments and further developments in transatlantic relations will show whether European defense companies can actually benefit from rising budgets or whether political factors will overshadow operational strength.