Geopolitical realities serve as a reminder that defending European interests requires both expertise and capital. The current conflict in the Middle East demonstrates the growing need to invest in order to meet the demands of modern warfare.
This heightened geostrategic risk is fuelling the rise, within the investment landscape, of the European sovereignty theme. This represents a strategic imperative for which the mobilisation of the financial ecosystem is essential, and a dynamic that is driving growth both for innovative businesses and for investors.
Technological sovereignty
Technological sovereignty lies at the heart of this transformation. The ability to master critical value chains and secure data has become paramount. To safeguard its strategic autonomy, Europe faces multiple and growing requirements – whether in the form of defence shields, strategic sites, the scaling up of artificial intelligence tools, the cybersecurity sector, or even drones…
It has now become decisive to reconcile the short-term perspective with the long-term strategic dimension, which obliges states to invest continuously in order to close the gap. In the field of defence, the stakes are even more apparent: the scaling up of public budgets and the necessity of doubling the output of European industrial ecosystems call for a massive recapitalisation effort. In time, this will create skilled employment, consolidate subcontracting networks, and establish a firm local foothold.
“Defence Tech”, a strategic sector
Defence budgets among European Union member states, historically treated as adjustment variables, are expected over the medium term to rise from below 2% and 3% of GDP to 5%(1). The accelerating increase in defence-related expenditure across Europe is also stimulating sectors at the intersection of the defence and space industries – a trend that constitutes one of the structural growth catalysts for the global space ecosystem. The space defence market is accordingly estimated to reach 250 billion dollars(2) by 2035, representing average annual growth of +9%, with certain segments expanding at an even faster pace and a near- to medium-term acceleration widely anticipated.
Access to space, its surveillance, and its protection have become matters of national sovereignty. French groups such as Thales and Safran, and Italian counterparts such as Avio and Leonardo, are already capturing this historic inflection point and exemplify the rise of European defence and aerospace manufacturers. These groups are also positioning themselves in cybersecurity, drones, and dual-use technologies, both civil and military, all of which are structurally growing segments. By way of example, 55% of Thales’s turnover, whose activities were originally centred on the civilian sector, is today dedicated to defence activities. That figure rises to 70% for Italy’s Avio. With steady order books, these flagship companies could well become Europe’s new stock market engine.
The rise of geostrategic risks and their recurrence validate our thesis regarding the ascendancy of the sovereignty theme. Alliances and longstanding ties between blocs and nations are no longer as solid as they once were, underscoring Europe’s need to organise itself in order to secure its strategic autonomy. The increasingly evident determination of the United States to withdraw from NATO calls into question more than 70 years of history. Building something of comparable scope will require enormous resources, sustained over many years.
At the same time, on the financing side, the growing concentration of flows towards large American capitalisations and index-tracking strategies further compounds the risk of a structural divergence for Europe. In this context, high-conviction active management is, in our view, a particularly strategic actor, accompanying companies that are laying the technological and industrial foundations of European sovereignty.
(1) European Defence Agency (EDA), 2025
(2) World Economic Forum, 2024
Disclaimers: The information and opinions of LFDE set out herein, as well as the sectors and securities mentioned, are provided for information purposes only and therefore constitute neither an offer to buy or sell any bond, nor investment advice, nor financial analysis. Past performances are not indicative of future performances.
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