NATO’s newest member Sweden announces $4 billion defense investment; Saab pops 5%
Sweden joined the military alliance in 2024 after it said that Russia's invasion of Ukraine had changed the security landscape.
Konoly
Sweden will order four navy warships from France in a $4 billion deal that will see its air defense capacity triple, the Nordic country announced on Tuesday morning.
The investment would be Sweden's biggest defense investment since the 1980's, Prime Minister Ulf Kristersson said at a press conference in Stockholm.
The purchase of the French Defense and Intervention (FDI) frigates from Naval Group is valued at about 40 billion Swedish crowns ($4.25 billion), and the first delivery is expected in 2030.
"It's a tripling of the Swedish air defense capacity compared to today, and that says something about the scale of this decision… the importance of the marine," Kristersson said.
"With this decision, I'm convinced that Sweden is now contributing to making the Baltic Sea significantly safer in the future."
Sweden joined NATO in March 2024 after it said that Russia's invasion of Ukraine had changed the security landscape and put an end to the country's two centuries of military neutrality and non-alignment.
Defense stocks jump
European defense stocks rose across the board in morning trading on Tuesday.
Sweden's fighter jet maker Saab rose 5.3% by midmorning, while Germany's Rheinmetall, Renk, and Hensoldt rose between 5% and 8%, boosting Germany's DAX, which rose 1.3%.
The pan-European Stoxx 600 blue-chip index was up 0.8%.
Defense stocks have risen since Russia's invesion of Ukraine in 2022.
Citi analysts on Monday upgraded shares of Saab to Neutral and shares of German munition maker Rheinmetall to Buy, citing a recent pullback across European defense.
An expected 11% growth for Saab in 2030-2035 is largely priced in, the analysts said.
Rheinmetall should benefit from a growing German defense budget, Citi said, noting that the home country only represented 38% of the company's sales last year, and the rest of Europe will continue to "grow considerably faster."
It's also well-placed to gain from exposure in fast-growing domains such as drones, space, and land systems, they added.
European defense companies are expected to benefit from governments building up military capabilities and last year's NATO decision to increase defense spending from 2% to 5% of gross domestic product by 2035.
However, soaring stock prices over recent years have led to questions around rich valuations.
