I spent last week reading German defense procurement contracts.
Sounds boring until you realize these are legally binding commitments to spend €100+ billion over the next decade—revenue that cannot be cancelled, even during recessions.
European defense contractors now have €200+ billion in contracted backlog. Rheinmetall alone has 6-7 years of guaranteed revenue locked in. Yet it trades at 14x earnings while generating 26% ROIC.
Here’s what most investors miss: defense revenue is more predictable than subscription software. Government contracts can’t be cancelled. Pricing automatically escalates with inflation. Demand is driven by geopolitics, not economic cycles.
While you chase AI stocks at 50-80x earnings, defense contractors with 5-7 year revenue visibility trade at 12-15x—the same multiples as Ford and Caterpillar.
The rearmament cycle is only 20-30% complete. When the market figures this out, these stocks re-rate violently.
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€200 billion in locked orders. 25% ROIC. 12-15x multiples. This won’t last.