Christoph Ohme, CFA, Head of German Equities ODDO BHF AM GmbH.
“Structural demand will remain with us for a long time to come” – Fund manager Christoph Ohme on investments in defense.
Many investors are wondering whether defense and military stocks can offer stable returns in the coming years. What is your assessment of the situation?
Yes, I am convinced of it. We are seeing a fundamental realignment of security policy in Europe – and especially in Germany. The Federal Republic is massively increasing its defense budget: defense spending is set to rise to €108.2 billion this year, reaching a record high since the end of the Cold War. According to the draft federal budget for 2026 presented by the federal government, €82.69 billion is earmarked for defense spending in the regular budget, with a further €25.51 billion to be financed from the Bundeswehr “Sondervermögen”. And that’s not all: by 2029, the defense budget is set to rise to over €150 billion. These long-term commitments ensure that defense companies’ order books will remain well filled for years to come.
«By 2029, the defense budget is projected to increase to over €150 billion.»
How exactly do these increasing budgets affect the industry?
Since 2023, the German government has initiated procurement projects worth more than €200 billion. At the last meeting of the budget committee in December 2025, a further 30 major projects totaling approx. €50 billion were approved. This means that the industry can count on predictable orders for years to come, in some cases extending beyond 2030. Such structural growth is currently hard to find in other sectors.
The sector has seen strong growth recently. Are defense stocks now overvalued?
Valuations have certainly risen and are no longer in the bargain range. But they reflect a unique situation: companies are experiencing a surge in demand that is not only driven by economic conditions but also by security policy considerations.
Orders in the systems sector, such as armored vehicles, air defense, and state-of-the-art radar satellite systems, are exceptionally large. In this environment, higher valuations are understandable. They reflect the high visibility of revenues and profits in the industry.
How do you assess the risks? After all, there have been quite volatile price movements recently.
That’s true, volatility has increased. There are several reasons for this: firstly, the higher valuations have led to greater fluctuations. Secondly, the industry faces the challenge of efficiently processing enormous order volumes.
On top, there are familiar issues such as supply chain bottlenecks and the shortage of skilled workers — but despite all these factors, the underlying dynamics in the sector are positive. Budgets are committed for the long term, the national security situation requires sustained high levels of investment, and Europe is assuming greater responsibility within the NATO context. Therefore, I remain convinced that the long-term outlook is positive.
Can other industries also benefit from the rearmament?
The defense sector is highly interconnected. Virtually every major defense project triggers developments along multiple supply chains. Suppliers of specialty steels, composite materials, or electronic components are in demand, as are companies specializing in sensor technology or specialty chemicals. The breadth of German procurement programs — from tanks and drone systems to satellite technology — ensures that the positive effects extend beyond the defense companies themselves.
What is your conclusion?
Europe is currently experiencing the most significant security policy transformation since the end of the Cold War. The political decisions of the last two years — particularly in Germany — are creating an environment in which the defense industry can grow considerably for years to come. For long-term investors, the sector therefore remains attractive, offering predictable returns. This structural demand will remain strong for a long time to come and should continue to have a positive impact on German defense stocks and the performance of German equities in general.
