Fetching...
Fetching...
13 March 2026
Defense is no longer just a budget line - it has become one of the most consequential investment themes of this decade. Global military spending hit USD 2.63 trillion in 2025, up from USD 2.48 trillion the year before, and the trajectory is only steepening. After a decade of consecutive increases, the 9.4% jump in 2024 was the sharpest single-year rise since at least 1988.[1,2] What's driving this? A convergence of geopolitical fracture, technological transformation, and a fundamental rethink by governments of what national security costs in the modern world. Russia's war in Ukraine redrew Europe's threat calculus almost overnight. Meanwhile, the Middle East remains a persistent flashpoint — Iran's nuclear ambitions, its backing of regional proxies from Hezbollah to the Houthis, and the broader instability unleashed by the Gaza conflict have pushed Gulf states and Israel to dramatically expand their defense postures. Israel's military spending as a share of GDP rose from 5.4% in 2023 to 8.8% in 2024 — the second-highest military burden globally after Ukraine.[2,16] In a world where multiple simultaneous crises have become the norm, defense spending is no longer cyclical. It is structural.
The most dramatic shift is happening in Europe. Rattled by Russia's invasion of Ukraine, European and Canadian NATO members increased defense budgets by roughly 50% between 2022 and 2025.[5] Europe as a whole allocated approximately USD 563 billion to defense in 2025 — nearly USD 100 billion more than in 2024 — representing 12.6% real-term growth, the fastest of any region globally.[1,3]
Germany is the standout story. After decades of post-war restraint, Berlin's defense spending surged 23.2% in 2024 and reached EUR 95 billion in 2025.[1] The Bundestag has approved a constitutional reform unlocking up to EUR 500 billion in additional defense investment over the coming decade — an extraordinary political and fiscal reversal.[18]
At the alliance level, 2025 marks a historic milestone: for the first time, all NATO members (except Iceland, which has no military) are expected to meet the 2% of GDP spending target.[2,4] The alliance collectively spent USD 1,506 billion on defense in 2024.[2] With NATO now discussing a 5% of GDP target, global military expenditure could reach between USD 4.7 and USD 6.6 trillion by 2035 if member states follow through.[6]
The United States remains the world's largest military spender, accounting for 36% of global defense expenditure in 2025.[1] The proposed FY2026 defense budget stands at USD 1.01 trillion — a 13.4% increase from FY2025 — with USD 40 billion allocated to the Space Force alone and a clear focus on AI, hypersonics, and unmanned systems.[12,14]
Beyond the West, China approved a defense budget of approximately USD 249 billion for 2025, representing steady year-on-year growth — and Beijing's share of Asia-Pacific regional military expenditure has climbed to almost 44%.[1] India, too, is scaling up: its FY2025-26 defense budget stands at USD 77.4 billion, a 9.5% increase, underpinned by an ambitious push toward defense export leadership by 2047 under the Atmanirbhar Bharat initiative.[15]
Bigger budgets tell only part of the story. What governments are buying has changed fundamentally — and that shift is creating distinct investment opportunities.
Drones & Unmanned Systems
The military drone market, valued at USD 18.2 billion in 2025, is projected to reach USD 66.5 billion by 2035 at a CAGR of 13.8%.[8] Drones are no longer support tools — they are central to reconnaissance, precision strike, and electronic warfare. The Pentagon's FY2025 budget allocated part of its USD 61.2 billion air power envelope to next-generation unmanned platforms like the MQ-4 Triton and MQ-25 Stingray, while partnerships like Anduril-Rheinmetall are accelerating autonomous drone production across NATO.[17]
Space & PNT
Space has emerged as a primary theater of military competition. The global space economy reached USD 613 billion in 2024 — up 7.8% year-on-year — with government space spending hitting USD 138 billion in 2025, driven largely by defense and sovereignty priorities.[9,10] Within the commercial sector, Positioning, Navigation, and Timing (PNT) services generated USD 231.4 billion in revenue in 2024, the single largest commercial space segment, as GPS-resilience becomes a top defense priority globally.[9] The space economy is projected to cross USD 1 trillion by 2034.[10]
AI & Digital Transformation
Software is now as strategically important as hardware. Palantir's USD 178.4 million TITAN contract — an AI system that unifies battlefield intelligence across sensors and platforms — is emblematic of a broader shift.[11] The Pentagon earmarked over USD 1.4 billion in 2024 for autonomous and swarming technologies alone.[7] AI is powering predictive maintenance, logistics optimization, and real-time surveillance across virtually every military function.
Missiles & Solid Rocket Technology
Stockpile depletion in support of Ukraine exposed critical gaps in long-range strike capacity. U.S. R&D and procurement in solid rocket and missile technology surged 340% since 2015, reaching USD 30.6 billion as of 2024 — a figure that reflects urgency, not just ambition.[17]
Advanced Air Mobility
eVTOL (electric vertical takeoff and landing) aircraft represent a quieter but fast-growing area of defense-commercial convergence. Over 93% of asset managers overseeing more than USD 1.78 trillion in AUM have expressed interest in the sector — a signal that institutional capital is paying close attention to dual-use mobility platforms.[7]
What makes this defense cycle different from prior build-ups is its structural durability. This is not a post-crisis spending spike. Governments across NATO, the Indo-Pacific, and the Middle East have embedded defense expansion into multi-year fiscal frameworks. The EU's ReArm Europe / Readiness 2030 plan — backed by a EUR 150 billion SAFE loan instrument and European Investment Bank financing — could mobilize up to EUR 800 billion in additional defense funding by 2030.[13] EU defense investment already hit a record EUR 106 billion in 2024, a 42% jump over 2023, and is projected to exceed EUR 130 billion in 2025.[3]
For investors, this creates a durable, policy-backed growth environment across AI-enabled platforms, cybersecurity, unmanned systems, space technologies, and missile production. Private capital — including European PE and VC — is also shifting its posture, recognizing that security underpins every other social and economic goal.
Defense is no longer just about national security — it is a dynamic engine of economic growth, industrial modernization, and strategic advancement.
1. IISS Military Balance 2026 2. SIPRI 3. EU Council 4. NATO 5. CSIS 6. IPIGlobal Observatory 7. Deloitte 8. GlobalMarket Insights 9. SpaceFoundation 10. Novaspace 11. DefenseScoop 12. ArmsControl Association 13. ArmsControl Association 14. AFCEAInternational 15. DelhiPolicy Group 16. Reuters 17. U.S.DoD 18. AtlasEdge