Global Defense Spending Hits New High as Geopolitical Tensions Reshape Investment Landscape

Growth in defense investment and implications for the industry

Global defense spending continues to expand, reaching a new record of $2.9 trillion in 2025 and marking the 11th consecutive year of growth. While the pace of increase has moderated compared to the previous year, the broader trend remains firmly intact, with global military expenditure now up more than 40% over the past decade¹.This sustained growth highlights a structural shift in geopolitical priorities, where defense and security have become central pillars of government spending across regions. However, future spending trajectories remain dependent on political priorities and fiscal constraints, which could lead to periods of volatility.

Source: SIPRI, April 2026

The expansion is particularly pronounced outside the United States. European defense spending rose sharply by 14% in 2025, while Asia and Oceania recorded an 8.1% increase², reflecting heightened geopolitical tensions and a continued focus on military modernization. As a result, global defense growth is increasingly broad-based, supporting a stronger and more diversified defense industrial base. This environment is favorable for companies across the defense value chain, from traditional prime contractors to suppliers of advanced technologies such as aerospace systems, cybersecurity and next-generation equipment, although execution risks, supply chain constraints and changing procurement priorities may impact individual companies differently.

In Europe, the acceleration in spending is especially notable, with military expenditure doubling over the past decade³. This is driving not only higher procurement volumes but also long-term investments in domestic industrial capabilities, as governments aim to strengthen strategic autonomy and resilience. At the same time, increased government involvement and evolving regulatory frameworks could influence how capital is deployed across the sector.

Where we go from here

Looking ahead, the trajectory for defense spending remains upward, supported by evolving NATO commitments. In June 2025, NATO members agreed to increase the overall defense-related spending target to 5% of GDP, including at least 3.5% allocated to core military spending⁴, signaling further budget expansion across European economies in the coming years. This policy shift underpins expectations of continued growth in European defense investment, although implementation timelines and definitions of qualifying spending may vary across countries.

In the United States, despite a temporary decline in 2025 driven by lower supplemental funding, the medium-term direction is expected to remain constructive. According to SIPRI data, underlying US defense priorities, such as nuclear modernization and strategic competition with China, continue to support elevated baseline spending⁵. In addition, recent geopolitical developments, including escalating tensions in the Middle East and ongoing global security challenges, may further reinforce the case for higher defense budgets.

Political momentum also points towards potential increases, with proposals to significantly expand US military spending, including ambitions to move towards a $1.5 trillion defense budget, highlighting the possibility of a renewed upward cycle from 2026 onwards⁶. However, such projections remain subject to political approval, fiscal dynamics and broader macroeconomic conditions, and may not materialize as expected.

Overall, while the defense sector appears structurally supported by geopolitical trends and policy commitments, investors should remain mindful of risks related to changing government priorities, budget constraints, regulatory developments and market volatility, all of which could influence the pace and distribution of future growth.

Importantly, defense spending is not a regional story but a global one, with growth broadening across Europe, Asia and other regions, highlighting the relevance of diversified, global exposure to the defense sector rather than a purely regional focus.

VanEck Defense UCITS ETF (DFNS) is built for this environment, tracking a global, which provides diversified exposure across US and European defense primes, mid-caps, and specialist suppliers, capturing both the US restocking cycle and the European autonomy build-out within a single allocation. DFNS offers investors a way to express a long-term view on defense spending without having to pick sides geographically or by subsector. As with all equity investments, VanEck Defense UCITS ETF is subject to market risk, including potential loss of principal, concentration risk, and elevated volatility relative to broader market indices.