“The next twenty years will come down to who has the best detection, the best deterrence and the best interception.”
That is how Sam Rines, macro-strategist at WisdomTree frames what is unfolding across global defense budgets. It is a shift that says as much about how capital is being deployed as it does about how much is being spent.
For much of the past two decades, markets treated defense as episodic. Budgets responded to events, capital followed, and the expectation was that both would eventually settle back. That pattern is becoming less reliable, not only because spending continues to climb, but because what governments are prioritizing is beginning to look very different.
A more hostile global backdrop is translating into higher defence spending across regions. In the United States, the current fiscal year budget has reached roughly $1 trillion, while global spending climbed to approximately $2.63 trillion in 2025. Europe, after years of constrained budgets, has moved more decisively, with Germany at the centre of a broader repositioning that markets have already begun to price in.
Rines’ point is not simply that spending will remain elevated. It is that the underlying logic of that spending has shifted.
“It’s not about the biggest system anymore,” he says. “It’s about who can respond effectively, repeatedly and at scale.”
The forces behind that system extend beyond any single conflict. Russia’s war in Ukraine altered threat perceptions across Europe, while uncertainty around the consistency of U.S. security commitments has encouraged governments to take a more direct role in their own defence planning.
Multi-year procurement frameworks are replacing shorter-term responses. Governments are directing capital toward domestic industrial capacity and limiting reliance on external suppliers.
Rines sees that as inseparable from economics.
“This is about reindustrialization as much as it is about defense,” he says. “You can’t outsource it. By design, the capital stays within a restricted system.”
That system pulls in more than prime contractors. It reaches into steel, aluminum and titanium production, into precision manufacturing and into labour markets that had, in some cases, been in decline. Facilities once tied to automotive production are being reactivated. Supply chains are being rebuilt within allied networks.
“When that level of spending starts flowing, you’ll see very quickly who wants to be aligned,” Rines says. “Capital has a way of shaping alliances.”
The composition of spending is shifting alongside the totals. Traditional platforms remain part of the equation, but a growing share of capital is being directed toward detection systems, autonomous technologies and interception capabilities. Recent conflicts have exposed the imbalance of using high-cost systems to counter low-cost threats, forcing governments to rethink how they allocate capital.
Established contractors continue to play a central role, but they are increasingly complemented by a new layer of companies. Some are visible, such as Palantir Technologies, which sits at the intersection of data and decision-making systems. Others operate further from public markets.
Rines points to examples like Crossbow, a Texas-based firm producing rocket motors out of a repurposed airport facility, as indicative of a broader trend.
“You’re seeing venture capital move into areas that historically weren’t part of the conversation,” he says. “A lot of these companies are not public, not visible and not easy to access, but that’s where a lot of the innovation is happening.”
Partnerships are also evolving. European firms are working with external specialists to build capabilities they did not previously have, particularly in areas such as drones and autonomous systems. The result is a layered ecosystem where legacy contractors and newer entrants operate alongside each other.
“You have the old guard adapting,” Rines says, “and at the same time you’re creating an entirely new guard.”
The market has already begun to reflect the shift, particularly in Europe, where defence equities have seen strong gains. At first glance, some valuations appear extended.
Rines argues that view misses the structure underlying those numbers.
“When you look at some of these companies, the multiples look eye-popping,” he says. “But you can see where the order book is going over the next decade.”
That forward visibility is unusual. Governments are committing to procurement years in advance, creating a pipeline of demand that extends well beyond typical economic cycles. As production scales, operating leverage becomes more pronounced, with incremental revenue translating more directly into earnings.
Volume plays a central role. “Even if the unit economics are different, you make it up in scale,” Rines says. “That’s why the market is willing to pay for that visibility.”
In some respects, the model begins to resemble a subscription dynamic. Delivery timelines stretch years into the future, and access depends on early commitment.
“If you want an interceptor later in the decade, you need to order it now,” he says.
Normalization, in that context, is not immediate. “It’s going to take time before those valuations settle,” he adds, “because the demand profile is not typical.”
While Europe has been the most visible part of the story, Rines sees the next phase extending into Asia.
Japan, in particular, is stepping forward, leveraging its industrial base to build more sophisticated detection and interception capabilities. South Korea, long accustomed to operating under constant threat, has developed expertise in those areas out of necessity.
What is being built, is different from what came before. The emphasis is moving away from singular expressions of force and toward systems designed to manage risk over time, to detect early, to deter effectively and to intercept reliably. Those capabilities are less visible, less dramatic and, for a long time, less interesting to markets.
Rines frames it in practical terms. “If you can intercept what’s coming at you,” he says, “you change the entire dynamic. You can talk a lot more.”
When vulnerability is reduced, the need to escalate diminishes. Capacity becomes less about projection and more about stability. The balance moves, gradually, toward resilience rather than response.
Defense is being built into industrial policy, technological development and long-term capital allocation.
This article has been produced in partnership with WisdomTree
Disclosure:
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