Defense spending is no longer a cyclical trade. According to Sam Rines, macro-strategist at WisdomTree, the global security environment has entered a phase where capital allocation to defense will persist for decades, driven by a fundamental shift in priorities toward detection, deterrence, and interception.
Global defense expenditure reached approximately $2.63 trillion in 2025, with the U.S. fiscal year budget alone hitting roughly $1 trillion. Europe, long constrained by austerity, has accelerated its commitments, with Germany at the forefront of a broader repositioning that markets have already begun to price in. Rines argues that the underlying logic of this spending has changed: it is no longer about the largest systems but about the ability to respond effectively, repeatedly, and at scale.
Multi-year procurement frameworks are replacing short-term responses. Governments are directing capital toward domestic industrial capacity, reducing reliance on external suppliers. This is not merely a defense build-up but a reindustrialization effort, pulling in sectors such as steel, aluminum, titanium, precision manufacturing, and labor markets that had been in decline. Facilities once tied to automotive production are being reactivated, and supply chains are being rebuilt within allied networks.
The composition of spending is also evolving. A growing share of capital is flowing into detection systems, autonomous technologies, and interception capabilities. Recent conflicts have exposed the inefficiency of using high-cost systems to counter low-cost threats, forcing governments to rethink allocation. Established contractors remain central, but they are increasingly complemented by newer entrants like Palantir Technologies, which sits at the intersection of data and decision-making, and Crossbow, a Texas-based firm producing rocket motors out of a repurposed airport facility.
Venture capital is moving into areas historically outside its purview, funding innovation in drones and autonomous systems. Many of these companies are private, not easily accessible to public markets, but they represent a significant source of innovation. European firms are partnering with external specialists to build capabilities they previously lacked, creating a layered ecosystem where legacy contractors and new entrants coexist.
Markets have already reflected this shift, particularly in Europe, where defense equities have seen strong gains. While some valuations appear extended, Rines argues that the visibility of order books over the next decade justifies the multiples. Governments are committing to procurement years in advance, creating a demand pipeline that extends beyond typical economic cycles. As production scales, operating leverage becomes more pronounced, with incremental revenue translating directly into earnings.
Volume plays a central role. Even if unit economics differ, scale makes up for it. The model begins to resemble a subscription dynamic: delivery timelines stretch years into the future, and access depends on early commitment. Rines notes that if you want an interceptor later in the decade, you need to order it now. Normalization is not immediate because the demand profile is atypical.
While Europe has been the most visible part of the story, Rines sees the next phase extending into Asia. Japan is 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. The shift is global and structural, not episodic.
For advisors, this means defense is becoming a long-term feature of global capital allocation, not a tactical trade. The emphasis is moving away from episodic responses to sustained investment in detection and interception systems. As Rines puts it, the next twenty years will come down to who has the best detection, the best deterrence, and the best interception.
