Donald Trump’s re-election has sent shockwaves through global markets, with the defense sector experiencing some of the most dramatic shifts. U.S. defense stocks have tumbled, while European arms manufacturers have surged. Big Tech, which plays a growing role in military contracts, faces new regulatory and market challenges.
The immediate reaction to Trump’s victory was clear: investors expect changes in U.S. defense policy. While Biden’s administration fueled military contractors with extensive Pentagon budgets and arms deals, Trump’s “America First” stance could disrupt existing spending patterns. European defense firms, however, appear to be benefiting from this shift, as expectations rise for increased NATO spending and reduced reliance on American military aid.
U.S. defense stocks take a hit
Since Trump’s win, major American defense stocks have recorded significant declines:
- Lockheed Martin (LMT): -2.68%
- RTX Corp (RTX): -2.70%
- Northrop Grumman (NOC): -3.58%
This downturn is surprising given that Wall Street’s broader index has risen by 5% over the same period. The sell-off reflects market concerns over potential reductions in U.S. military aid to Ukraine and a possible shift in procurement priorities. Investors fear that Trump’s administration may push for a more isolationist defense approach, prioritizing border security and countering China rather than engaging in costly foreign commitments.
Between 2022 and late 2024, U.S. defense stocks had enjoyed remarkable growth:
- Lockheed Martin: +70%
- Raytheon Technologies: +40%
- Northrop Grumman: +50%
This expansion was fueled by high defense budgets and an unprecedented flow of contracts related to Ukraine and NATO reinforcement. Now, uncertainty looms over whether these trends will continue.
European defense firms on the rise
While American defense stocks decline, European counterparts are moving in the opposite direction. Investors are betting on increased military budgets across Europe as NATO members react to Trump’s foreign policy stance.
- Rheinmetall (Germany): +70%
- Leonardo (Italy): +30%
- Thales (France): +10%
The Stoxx Europe Total Market Aerospace & Defense Index has surged by 33.4% in 2024, reflecting the growing demand for European-made weapons and military systems. With uncertainty surrounding U.S. military commitments, European leaders are preparing for greater self-reliance in defense.
The NATO factor
Trump’s previous presidency was marked by criticism of NATO, particularly regarding member states’ defense spending. His insistence that European allies contribute more to collective defense forced governments to reassess their budgets. His return to office is expected to accelerate these efforts, further benefiting European defense manufacturers.
Germany, France, and Italy have already announced increased military spending, with a strong emphasis on local defense firms. The European Defense Fund, established to support regional arms production, is set to expand, providing additional resources for research and development.
Big Tech: Peripheral but significant
Some analysts suggest that Big Tech is emerging as a competitor to traditional defense contractors. While companies like Microsoft, Google, and Amazon are involved in military projects, their revenue from Pentagon contracts remains relatively small—around 2%.
SpaceX and Palantir, however, have made deeper inroads. SpaceX’s Starlink system played a crucial role in Ukraine’s military communications, while Palantir’s AI-driven battlefield analytics have gained traction with Western militaries.
- Palantir Technologies (PLTR): +1.06%
- Virgin Galactic (SPCE): +2.34%
Despite their growing influence, these firms do not yet pose a serious challenge to traditional arms manufacturers. The war in Ukraine reaffirmed the importance of conventional weaponry, with demand for tanks, missiles, and artillery outpacing investment in tech-based warfare solutions.
Regulatory uncertainty for Big Tech
Big Tech faces another challenge: regulation. Under Biden, the Federal Trade Commission (FTC), led by Lina Khan, pursued aggressive antitrust measures against major tech firms. Trump’s administration may reverse some of these policies, potentially easing restrictions. However, his past confrontations with Silicon Valley suggest an unpredictable approach.
Meta (Facebook) saw its stock decline after Trump’s election, reflecting investor concerns over potential regulatory shifts and renewed political conflicts between the platform and the White House.
- Meta Platforms (META): -2.5%
- Alphabet (GOOG): -0.54%
- Amazon (AMZN): -0.75%
Shifting economic priorities
Trump’s second term could bring fundamental changes to U.S. economic priorities. If military aid to Ukraine is reduced, some of those funds could be redirected to domestic projects. Infrastructure spending, tax cuts, and reshoring initiatives may take precedence over foreign military assistance.
Meanwhile, Europe’s increasing defense budgets raise questions about fiscal sustainability. While countries like Germany and France have strong industrial bases to support higher military spending, others may struggle to balance defense investments with social programs.
A new era for defense markets
Trump’s election has introduced volatility into the defense sector. U.S. military contractors face an uncertain future, while European defense firms capitalize on shifting NATO dynamics. Big Tech, though increasingly involved in defense projects, remains a secondary player with regulatory risks ahead.
As the world adjusts to Trump’s return, defense markets will continue evolving, reflecting changing political strategies and economic realities. The coming months will determine whether U.S. contractors can recover or if European firms will solidify their newfound advantage.