5% of GDP by 2035 for rearmament!
In June 2025 every NATO member except Spain signed up and committed to that goal
The market loved the idea, even though, as we all know, spending pledges get overdone. Governments make them to sound good, but then seem to forget quite what they pledged.
This commitment is going to be harder to walk back, because of the geopolitical environment we moved to in the past few years. Europe has spent thirty years spending its “peace dividend”.
Those days are over.
I’ve whittled down the entire rearmament and military aerospace industries to identify what I believe are the 4 best opportunities today:
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Now this is a trade which has been well trodden for the past two years. Market participants have bid up the primes, to a level which I have trouble getting excited.
The trouble with a prime is that its revenue is function of a delivery schedule. And while that schedule can have a bigger order book, there is not massive torque on margins due to the increase in demand.
The contract was priced years ago, the book is full, and when demand jumps the prime has trouble charging more for it.
The bottleneck sits a tier down, and that’s where the money is made: forgings, composites, radar parts, the small engines that fly something once.
The 2026 US-Iran war ran emptied stockpiles faster than anyone predicted. Interceptors that cost more than the drone they kill are a bad trade which governments make anyway, again and again.
So it becomes clear that in conflicted environments like this one, the consumables of war have value, especially when we’re behind on actually making these things!
