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A famous line from Star Wars: The Clone Wars goes, “Wars are not won with superior weapons, but with superior strategy.” But in today’s financial markets, the winning strategy appears to be investing in superior weapons — especially when they're made outside the United States.

As geopolitical tensions escalate and trust in long-standing U.S.-led alliances falters, countries across Europe and Asia are rapidly boosting their defense budgets. This surge in military spending is sending shares of European and Asian defense companies skyrocketing, often leaving their American counterparts in the dust.

Why Global Defense Spending Is Surging

Since 2020, the global landscape has shifted dramatically:

• Russia’s invasion of Ukraine
• Rising tensions in the Indo-Pacific
• Concerns over NATO's future unity
• Political uncertainty in the U.S.

All of these factors have pushed countries to take defense into their own hands — literally.

According to data from the Stockholm International Peace Research Institute (SIPRI), global military spending reached $2.24 trillion in 2023 — up 3.7% from the previous year and hitting an all-time high.

European and Asian Arms Makers Outperform Wall Street

While U.S. defense giants like Lockheed Martin and Northrop Grumman continue to grow steadily, they haven't seen the explosive gains of some of their overseas peers.

• Hanwha Aerospace (South Korea): Up over 150% since 2022
• Korea Aerospace Industries: Surged more than 120% in the same period
• ST Engineering (Singapore): Gained over 70% in the last 12 months
• Rheinmetall (Germany): Rose 135% in 2023 alone

Why the gap? According to King Mallory, senior researcher at the RAND Corporation, the answer lies in revaluation and domestic demand. The U.S. defense sector has long been considered a mature and saturated market, where growth is expected but not explosive. In contrast, Europe and Asia are seeing record-setting investments into their domestic defense industries.

European Nations Turn East Amid Supply Crunch

European defense companies are overwhelmed. After pledging huge volumes of weapons and aid to Ukraine, they’re struggling to restock their own arsenals fast enough. Many lack the infrastructure to ramp up production in the short term.

So, they’re turning to Asian defense firms to fill the gaps.

• Poland, after donating Soviet-era aircraft to Ukraine, ordered 48 FA-50 fighter jets from Korea Aerospace Industries
• Hanwha Aerospace secured multi-billion dollar contracts to supply K9 self-propelled howitzers to Poland and Romania
• In March 2025, Hanwha announced a ₩3.6 trillion ($2.5 billion) rights offering to expand both domestic and international production
• ST Engineering signed deals to produce 155mm artillery shells for European clients in 2024, with growing contracts expected through 2026

According to CGS International, ST Engineering is “entering a multi-year earnings upcycle,” driven largely by this surge in overseas demand, especially from Europe and the Middle East.

Japan’s Defense Pivot: A Quiet but Powerful Shift

Traditionally bound by post-WWII pacifist policies, Japan is now rewriting the script. The country has pledged to double its defense budget to 2% of GDP by 2027, abandoning its self-imposed 1% cap.

Despite its historical reluctance to export arms, Japanese defense stocks have quietly rallied as domestic manufacturers prepare to play a bigger role in both national defense and allied partnerships.

The Trust Deficit in U.S. Alliances

One unspoken factor behind this trend is waning global confidence in U.S. leadership. From “America First” trade rhetoric to uncertainties around NATO’s future, many governments are now taking national security into their own hands.

Investors have taken notice.

“When trust in traditional alliances fades, self-reliance becomes a national strategy — and investors see that as long-term growth,” said Daniel Roche, strategist at Quantum Research.

He added, “This is not just a temporary military build-up. Countries have too much butter and no guns — and they’re not going to stop buying defense equipment for at least another 10 years.”

A New Global Arms Race?

We may be entering a multi-decade rearmament phase, not seen since the Cold War.

• NATO countries have pledged to meet the 2% GDP target on defense spending
• South Korea's defense exports hit $17.3 billion in 2023 — a 70% increase from 2022
• Germany approved its largest defense budget ever in 2024, with over €100 billion earmarked for modernization

These trends are likely to continue, regardless of U.S. political shifts or leadership changes.

An Investment Strategy Shaped by Geopolitics

The world is changing — and so is the way investors think about defense stocks. The old playbook of betting solely on American military giants is being rewritten by global demand, faster innovation abroad, and rising distrust in traditional power structures.

Whether you're a portfolio manager or just a retail investor, one thing is clear: the next decade of defense stock growth might not be made in America.

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