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Investing.com - Bank of America highlighted accelerating defense spending growth in the United States and Europe, potentially benefiting major defense contractors.
NATO allies agreed in late June to increase defense equipment spending to 3.5% of GDP by 2035, up from the previous 1.5% to 2% range, according to BofA’s analysis. The total national security spend target will reach 5% of GDP, marking a significant boost for the defense sector.
European defense contractor stocks have performed well this year as markets anticipate stronger spending, though BofA notes that U.S. contractors may eventually lose some market share in Europe as countries invest in domestic defense industries.
Certain U.S. programs like the F-35 fighter jet could remain dominant in Europe as they would take a decade or more to replace with domestic alternatives, while other equipment categories could be replaced more quickly by European manufacturers.
BofA’s analysis also addressed the growing role of drones in modern warfare, implications for premium defense equipment, and whether fiscal year 2027 might see reduced U.S. defense spending despite current growth trends.
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