Former Supreme Allied Commander at NATO, Adm. James Stavridis, told Goldman's Allison Nathan, "In my career, I've never seen a higher level of maritime risk than I do today. That owes first and foremost to the return of great power competition, which we thought was basically over when the Soviet Union collapsed."
Three decades after the Cold War ended, conflicts rage across Ukraine, Gaza, the Red Sea, Myanmar, the Sahel, Sudan, and potentially Taiwan and Iran. The rules-based system of international relations modeled on America's liberal-democratic values is crumbling as the world stumbles into a nascent multipolar era.
The current military-security situation worldwide is a boon for defense contractors, especially for the ones profiting from the Ukraine conflict (and soon the Red Sea conflict).
"A new decade of security policy has begun," Armin Papperger, CEO of German arms manufacturer Rheinmetall, told investors during an earnings call on Wednesday.
Rheinmetall reported that it expects to exceed 10 billion euros ($10.9 billion) in sales for the first time in 2024, with an operating profit margin of 14-15%, up from 12.8% in 2023.
Shares of Rheinmetall in Germany jumped more than 4.5% on Wednesday, hitting fresh record highs - and have surged 53% year-to-date.
Rheinmetall manufactures Leopard 2 tanks, tactical vehicles, and anti-aircraft tanks. Many of these defense items have been sent to Ukrainian battlefields.
"We're enabling governments to protect their people from war and violence — the primary and most important responsibility of any government," Papperger said, adding, "Germany and Europe haven't faced such insecurity since the Cold War."
The International Institute for Strategic Studies recently warned: "The current military-security situation heralds what is likely to be a more dangerous decade, characterized by the brazen application by some of the military power to pursue claims."
David Asher, a senior fellow at the Hudson Institute, noted there are other opportunity in European arms companies:
"Rheinmetall is screaming hot, but there are many other European arms manufacturers who stand to benefit. No doubt that for the NATO members dramatically increasing defense spending is their best defense against Putin's threats of offense. Same with a potential Trump return as President and demands that they either dramatically pick up defense spending and burden sharing or be shunted aside at an incredibly dangerous time."
This dangerous multipolar world bodes well for the bull market in the defense sector.
