According to external sources, the recent fall of the European Defence Unit does not mean that the long-term logic of the plate has been broken. The market is more concerned about the companies that eventually receive the additional military expenditures and which can convert AI, drones and electronic warfare capabilities into orders and profits.
The funding has shifted from a comprehensive perspective to the selection of candidates
The Panmure Liberum strategist, Joachim Klement, interviewed by CNBC, said that the European defence block had previously benefited from the expectation of an increase in the number of countries, but that investors no longer saw “increased military spending” as a gain.
In his view, the market was distinguishing between traditional large weapons platforms and a new generation of combat systems. Valuation pressures are rising on projects with long procurement cycles, high costs and mismatches with changes on the battlefield.
Electronic warfare and drones are closer to technology company logic.
According to Klement, the next generation of defense winners will become more like software and AI rather than traditional military-industrial manufacturers. He defined electronic warfare as a “scientific phenomenon” and stated that the enterprises concerned should be priced according to the logic of the technology unit.
In his view, companies with AI enhanced weapons systems, drone combat and anti-UAV capabilities might be better valued than traditional manufacturers such as tanks, artillery, etc.
He mentioned by name that Leonardo in Italy and BAE Systems in the United Kingdom were building systems that combined AI with drone technology. In contrast, part of Germany ' s traditional defence direction is moving slowly on new operational capabilities.
The cancellation of the German project is considered a valuation split signal
Klement also referred to the cancellation of the F126 project in Germany as an indication that even if military expenditures continued to rise, traditional large projects were not natural security. Support may still be lost if the project moves slowly, costs are high or does not meet new military requirements.
This also means that the market ' s judgement of defence enterprises is changing, not only in terms of the total budget, but also in terms of whether or not the money really goes to AI, electronic warfare, deep strikes and unmanned systems.
Hügues Lavandier, a senior partner in McKinsey, also stated to CNBC last month that European defence spending currently covers a wide range of traditional equipment, including major battle tanks, ammunition, carriers and frigates, as well as new areas such as anti-unmanned aircraft, unmanned systems, and remote strike capabilities.
Recent round-trip or more from the funding wheel
With regard to the recent weakness of some of the European Defence Units, Klement argued that the greater reason might be the change in financial flows rather than the deterioration of industry fundamentals.
He indicated that a number of fund managers currently had limited cash and that, against the background of the continuing warming of AI transactions, funds would be diverted from other popular sectors to large-scale AI-related assets. Even so, he continues to believe that the trend towards European military expansion has not slowed significantly, with Germany and Poland, in particular, continuing to increase defence spending.