Global Defense Spending Soars: A New Era of Investment Opportunities
The global defense landscape is undergoing its most rapid transformation in decades, fueled by increased investment and accelerating technological advancements. This structural shift presents long-term, attractive opportunities for investors.
Worldwide, evolving geopolitical dynamics, rising tensions, and emerging military technologies are reshaping national security strategies, impacting defense budgets significantly. In 2024, global military expenditure reached a record $2.72 trillion, marking the eleventh consecutive year of growth.
After years of underinvestment, Europe is rapidly rearming. Prompted by the war in Ukraine, NATO countries’ defense spending has surged, with 23 nations expected to meet the target of 2% of GDP by 2025, a stark contrast to the six countries that achieved this in 2021. Germany, Poland, and the United Kingdom are leading the continent’s most extensive military buildup since the Cold War. The United States, the world’s largest military spender, is shifting its focus from legacy systems to modernization, allocating a growing portion of its budget to next-generation capabilities and research and development (R&D), emphasizing efficiency, innovation, and strategic flexibility.
Secular Growth Expected Beyond 2030
The recent surge in global defense spending is more than a reaction to heightened global tensions; it signals a new era. Countries are reassessing their approaches to national security and resilience, implementing structural changes in their defense operations.
For investors seeking to diversify their portfolios with a theme that offers both long-term prospects and strong growth potential, the defense sector presents compelling opportunities and significant innovation potential.
“As global defense priorities shift and innovation accelerates, we see a clear increase in demand from investors for more targeted exposure, whether it’s future technologies like AI and autonomous systems, or specific regions like Europe. This new wave of interest reflects a broader awareness of defense as a long-term structural investment theme. Our goal is to offer access to these evolving opportunities through ETFs,” says Kilian Dieden Richter, Regional Director at Global X.
This momentum is supported by substantial government spending commitments. Modernization efforts in the U.S., combined with Europe’s renewed commitment to rearmament, suggest that defense budgets will continue to rise over the next decade. NATO countries recently agreed to allocate 5% of GDP to defense by 2035, including 3.5% to core defense capabilities. They also stipulated that 1.5% of GDP should be directed towards defense infrastructure. Germany has already committed to allocating 3.5% by 2029.
Key Growth Signals in the Global Defense Industry
* Global military expenditure is projected to grow by 5% annually, reaching $3.4 trillion by 2030.
* Germany’s defense spending in 2025 increased by 25% compared to the previous year, totaling €86 billion, the third-largest after the U.S. and China.
* The EU’s Rearm Europe Initiative, valued at €800 billion, focuses on long-term defense investments and technology adoption.
* The U.S. is modernizing its military with AI, autonomous systems, drones, and robotics, likely influencing other allied nations.
* Countries such as India, Israel, Taiwan, and Saudi Arabia continue to increase their defense investments.
Where Technology Meets Defense
Today, defense encompasses more than just purchasing ammunition and fighter jets. The battlefield is increasingly digital, transforming the investment landscape.
Despite defense historically being one of the least digitized industries, recent conflicts have highlighted the importance of emerging technologies.
Software still accounts for less than 1% of the U.S. Department of Defense’s expenditure. However, this is changing as the U.S. and its allies lead the charge in increasing the use of digital tools. Investments in software, AI, and cybersecurity are expected to rise, supported by programs like Project Maven, which aims to integrate AI into military intelligence.
The Rearm Europe/Readiness 2030 initiative also emphasizes future technologies. Two of the initiative’s seven focus areas concern modern capabilities such as drones, AI, quantum computing, and electronic warfare. Germany recently awarded its largest contract ever to digitize its infantry equipment, while the UK plans to spend £4 billion on drones and autonomous military systems.
A Global Investment Ecosystem
These innovations are developing within an increasingly interconnected defense ecosystem, comprising public and private partnerships, established players, startup ecosystems, and emerging technology companies.
An example of industrial collaboration is Lockheed Martin’s partnership with Germany’s Rheinmetall, planning to establish a European center for missile systems. This project underscores Europe’s goal of achieving defense sovereignty and the strategic role of American contractors in that process.
Capital inflows from both private equity and venture capital have also accelerated, targeting both military applications and dual-use technologies in areas such as AI and robotics.
Investing in Defense Through Global X
Defense investments are rapidly becoming more global, technology-focused, and capital-intensive. Simultaneously, new investment tools are making it easier for private investors to participate in this transformation.
Global X ETFs, a leading provider of thematic and alternative investments, has launched both global and European defense-oriented solutions. These solutions offer exposure to established defense giants as well as fast-growing innovators shaping the future of military capabilities. By combining both sides of the defense industry, Global X ETFs provide investors with access to the entire spectrum of the sector, from stable, predictable growth to high-growth, innovation-driven opportunities.
As defense budgets expand and modernization accelerates, the sector is attracting more investors than ever. For investors, this trend provides access to a global growth story with the potential for diversified portfolios in uncertain global conditions.
Sources:
* SIPRI: Unprecedented rise in global military expenditure as European and Middle East spending surges (April, 2025)
* Atlantic Council – Defense Spending Tracker
* NATO: The Hague Summit Declaration (June, 2025)
* Politico: Germany pledges to hit 3.5 percent defence spending target by 2029 (June, 2025)
* Global X ETFs forecast with information derived from: SIPRI, 2024.
* Politico.eu. (2025, June 24). Germany backs major NATO defense spending boost — but not to please Trump.
* President’s Budget (PB) 2024 Budget Request. U.S. Department of Defence.
* Defence-Industry.eu (February, 2025): Rheinmetall secures landmarkEUR 3 billion contract for Bundeswehr infantry digitisation
* UK Government Press Release, June 2025): Major £5 billion technology investment accelerates UK defence innovation in a European first
* Lockheed Martin (April, 2025): Strategic Cooperation: Lockheed Martin And Rheinmetall To Join Forces On Centre Of Excellence For European Security
* Crunchbase News (February, 2025): Defense Tech Venture Funding Gains Traction
Enjoyed this post by Thibault Helle? Subscribe for more insights and updates straight from the source.
