European defense stocks plummeted following meetings between US President Trump and Russian President Putin in Alaska and Ukrainian President Zelenskyy in Washington. Reports of a potential ceasefire and US-led deals sparked the selloff, impacting valuations and profit-taking after recent gains. Structural drivers like depleted stockpiles and Europe’s defense gaps keep long-term demand strong, despite vulnerability exposed at the summits. The correction is seen as short-term, with fair value estimates unchanged and growth underpinned by NATO goals and defense deterrence.

The need for credible defense autonomy and industrial resilience is highlighted, as Europe faces dependence vulnerabilities and pressure to boost spending for US support. While negotiations for a peace deal may be prolonged, the investment thesis in defense remains valid, with stockpile reconstruction essential regardless of ceasefire timing. Europe must address scale and capability gaps in key areas like missiles, cyber defense, and unmanned systems to adapt to modern warfare trends towards mass, high-intensity engagements.

Read more at Morningstar: European Defense Stocks Drop on Peace Deal Hopes, but Long-Term Drivers Remain Intact