Shares in BAE Systems PLC (LSE:BA.) rose 6% to 2,036p on Thursday, extending a sharp rally as defence stocks move from being a tactical trade to a more permanent fixture in portfolios.
According to Saxo, the shift reflects a changing geopolitical baseline rather than a single flashpoint.
Charu Chanana, Saxo’s chief investment strategist, said defence is increasingly being discussed as a “core portfolio” exposure as multiple tensions flare simultaneously, from Greenland and the Arctic to Asia and Latin America.
The early weeks of 2026 have reinforced that sense of permanence. Europe is under pressure to convert urgency into multi-year defence roadmaps following NATO’s latest commitments, which point to spending of up to 5% of GDP by 2035 when broader security is included.
That signals longer visibility for defence budgets, even if progress varies by country.
The US adds a different dynamic. While President Trump has called for a much larger military budget, contractors face tougher scrutiny on delivery and production, raising the prospect of winners and losers rather than a rising tide lifting all boats.
Chanana also highlights how artificial intelligence is reshaping what defence spending looks like. Investment is no longer confined to jets and ships, but increasingly targets drones, sensors, secure networks and software that compress decision-making time.
For large, diversified groups such as BAE, that broadening definition plays to strengths across platforms, electronics and systems integration.
The rally in BAE, alongside gains across European peers, reflects growing investor conviction that defence demand is structural.
The risk, Saxo cautions, lies less in demand and more in execution, fiscal constraints and political scrutiny as spending ambitions rise.