- European defense stocks have risen impressively by 46% since the beginning of the year, while the U.S. Magnificent 7 has declined by 8%.
- Market leaders such as Rheinmetall and Rolls-Royce have significantly increased in value due to expectations of higher defense spending by European governments.
- A notable market trend shift is evident—European stocks are outperforming their U.S. counterparts, with the STOXX 600 index rising by 9% and the S&P 500 declining by 2% YTD.
According to an analysis by the investment platform eToro, as U.S. tech giants falter, the European defense sector is delivering outstanding returns, surpassing both the Magnificent 7 and broader stock markets in the U.S. and Europe.
A Changing Market Landscape
The Magnificent 7—a group comprising U.S. tech mega-caps Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia, and Tesla—has been the dominant force in global stock markets in recent years, achieving a 63% gain in 2024. However, their supremacy is now being questioned, as the group’s index has dropped by 8% since the start of 2025.
With global capital diversifying into other sectors and regions, the European defense industry has captured investor interest, posting remarkable gains. eToro has established an index tracking seven leading European defense companies—BAE Systems, Rolls-Royce, Rheinmetall, Thales, Dassault Aviation, Safran, and Leonardo—which has risen by 46% YTD, 65% over the past year, and an astonishing 268% over the last five years.
This means that the “European Defence 7” has not only outperformed the U.S. Magnificent 7 but also outpaced the broader U.S. and European stock markets over the same periods. Over the past year, this defense stock basket has generated returns five times higher than the S&P 500 and nearly six times more than the STOXX 600.
Performance Comparison: Magnificent 7 vs. European Defence 7 vs. GRANOLAS
| YTD | 1 Year | 3 Years | 5 Years | |
|---|---|---|---|---|
| US Magnificent 7 | -8% | 21% | 66% | 227% |
| European Defence 7 | 46% | 65% | 245% | 268% |
| GRANOLAS | 12% | 8% | 32% | 58% |
| S&P 500 | -2% | 13% | 39% | 99% |
| STOXX 600 | 9% | 11% | 31% | 50% |
Source: Refinitiv, as of March 5, 2025.
Past performance is not a reliable indicator of future results.
European Defense Sector in the Spotlight
Commenting on these trends, Lale Akoner, Global Market Analyst at eToro, stated:
“With the Trump administration suspending military aid to Ukraine, European leaders have had to take matters into their own hands and broker a peace deal. Governments across the continent have committed to increasing defense spending, and the European Commission has unveiled an arms production strategy. Ongoing geopolitical tensions have created a perfect climate for the European defense sector, as the region becomes increasingly reliant on its domestic contractors. Investors should watch whether these plans and commitments translate into concrete funding and expenditures in the coming months.”
Standout Performers in the European Defence 7 Basket
Within the European Defence 7, Germany’s Rheinmetall has shown the most impressive growth, surging 82% YTD and increasing over 13 times in the past five years. BAE Systems, the UK’s largest defense contractor, has gained 36% YTD following record-breaking orders and profits last month. Rolls-Royce has also surged 34% after reporting strong annual results.
The broader European stock market is now outperforming the U.S., with the STOXX 600 up 9% YTD compared to a 2% decline in the S&P 500, which has long been the global leader. GRANOLAS—a diversified basket of Europe’s eleven most valuable public companies (GSK, Roche, ASML, Nestlé, Novartis, Novo Nordisk, L’Oréal, LVMH, AstraZeneca, SAP, and Sanofi)—has also outpaced the U.S. Magnificent 7, rising 12% YTD.
Shifting Investment Trends
Lale Akoner, Global Market Analyst at eToro, added:
“For the past five years, investors have grown accustomed to U.S. tech giants dominating the market. However, every trend can shift. The Magnificent 7 stocks are showing signs of overvaluation. Disappointing earnings reports, an upcoming trade war, and growing competition from China have negatively impacted their 2025 performance. As a result, investors are increasingly diversifying their portfolios, seeking opportunities in sectors such as defense, finance, and healthcare, as well as in regions like Europe.”
European Defence 7 Stock Performance
| Stock | Market Cap (EUR bn) | YTD | 1 Year | 3 Years | 5 Years |
|---|---|---|---|---|---|
| Rheinmetall | 49 | 82% | 161% | 655% | 1,316% |
| Thales | 46 | 74% | 68% | 108% | 146% |
| Leonardo | 28 | 66% | 115% | 476% | 412% |
| Dassault Aviation | 21 | 42% | 50% | 112% | 195% |
| BAE Systems | 56 | 36% | 26% | 127% | 163% |
| Rolls-Royce | 80 | 34% | 110% | 772% | 290% |
| Safran | 107 | 21% | 32% | 163% | 121% |
Source: Refinitiv, as of March 5, 2025.
Past performance is not a reliable indicator of future results.
Author: Lale Akoner
