Rheinmetall (RHM) — The NATO Rearmament Cycle

Rheinmetall AG (Frankfurt: RHM) is Europe’s leading defence and automotive technology company, producing ammunition, armoured vehicles, artillery systems, military trucks and electronic warfare equipment. Since Russia’s invasion of Ukraine in February 2022 triggered a structural shift in European defence spending, Rheinmetall has become one of the most discussed stocks in Europe — and has delivered +767% returns from its 2022 lows for investors who recognised the NATO rearmament signal early.

What Is Rheinmetall? Company Overview

Rheinmetall is headquartered in Düsseldorf and employs approximately 33,000 people. Its business is split between two divisions: Defence (approximately 70% of revenue and 85%+ of operating profit) and Automotive Technology (a legacy division producing pistons, plain bearings and filtration systems for combustion engines). The automotive division is structurally declining as EV penetration rises, but the defence division is growing at 30%+ per year as NATO member states accelerate rearmament.

Rheinmetall is the sole European producer of 155mm artillery ammunition at scale — the standard NATO calibre. Its Leopard 2 tank main guns and KF41 Lynx infantry fighting vehicle are core to German and broader European rearmament programmes. Orders have exceeded €40bn (versus annual revenue of approximately €9bn in 2024), giving Rheinmetall a multi-year revenue visibility that is unusual in any industrial company.

The NATO Spending Cycle: Historical Context

NATO’s 2014 Wales Summit established a target of 2.0% of GDP for defence spending across member states. After Russia’s annexation of Crimea, European nations pledged to reach this target but most fell short. By 2021, only Greece, Estonia, Latvia and the UK consistently met the 2% threshold. Germany, France, Italy and Spain were at 1.3–1.7%. This underinvestment was the BUY signal for European defence stocks.

Russia’s full invasion of Ukraine in February 2022 was the catalyst that turned the underinvestment cycle into a spending surge. Germany announced a €100bn Bundeswehr special fund within days of the invasion. NATO members collectively committed to raising targets to 2.5% and ultimately 3.0% of GDP. This created a structural order backlog for Rheinmetall that will take a decade to fulfil.

The +767% Trade: Full Cycle Documentation

Rheinmetall vs. European Defence Peers

Rheinmetall outperformed all European peers because it is uniquely exposed to the ammunition and ground vehicle segments that were most urgently needed in Ukraine — and most urgently restocked by NATO members. BAE Systems, with its naval and aircraft exposure, had a more moderate re-rating. Saab has been the strongest Nordic performer due to Swedish NATO accession and Gripen demand.

The Current Situation: Mid-Cycle, Not Late-Cycle

NATO spending is tracking toward 2.0–2.5% of GDP across most member states in 2026. Germany has committed to 3.0%+ through its new constitutional amendment. Poland is targeting 4.0% — the highest in NATO. France and the UK are around 2.0–2.3%. The Signycle SELL threshold of 3.5%+ across major states is not yet reached. This suggests the cycle has further to run, but the easy money from the 2022 BUY signal has already been made.

New investors entering Rheinmetall at €700+ in 2025–26 are buying a company trading at 30–35x forward earnings on the assumption that revenue growth will continue at 25%+ for several more years. This is possible given the order backlog, but the valuation leaves little room for execution risk or any de-escalation in European defence spending intentions.

Key Risks for Rheinmetall Investors

Geopolitical de-escalation: A negotiated end to the Ukraine war or significant diplomatic progress on European security could reduce the urgency of NATO spending programmes. This is the primary tail risk for all European defence stocks.

Execution risk on capacity: Rheinmetall is expanding 155mm ammunition capacity from approximately 70,000 rounds per year (2022) to 700,000+ rounds per year (2027). This 10x expansion involves new factories in Germany, Lithuania, Ukraine and elsewhere. Industrial scale-up of this magnitude carries meaningful execution risk.

Automotive division drag: The legacy automotive business is declining as internal combustion engine vehicle production falls. Rheinmetall has been transparent about this drag, but it creates a two-speed earnings dynamic that complicates valuation.