NATO was formed in 1949 when the United States and 10 European nations signed the North Atlantic Treaty in Washington, D.C.
By most accounts, it has been very successful. Not one American has died defending Europe since its launch, as it deterred the Soviet Union during the Cold War and, up to Ukraine, deterred Russia.
U.S. troop levels in Europe have declined from roughly 400,000 to 75,000 today. The annual direct cost to the U.S. taxpayer is about $40 billion, representing less than 4% of our defense budget, with most local costs and infrastructure costs borne by host countries.
NATO membership and infrastructure allow America to project power not only in Europe but also in the Middle East and Africa. Finally, NATO members are significant buyers of U.S. defense contractors, leading to greater scale and lower costs, as well as interoperability of defense systems from fighter jets to ammunition.
Due to the Ukraine war and constant U.S. pressure, European defense spending surged by 14% from 2024 to 2025 as NATO members bulked up military capabilities—the fastest annual increase since 1953.
Poland and Germany are leading the way due to geography, economic strength, and reputations as centers for manufacturing and engineering excellence.
Rheinmetall AG (RNMBY) provides mobility and security technologies in Germany, Europe, South America, Asia and the Near East, and internationally. Founded in 1889, Rheinmetall is a German defense company with a growing reputation as NATO’s key player. While it maintains a small civilian business, the defense division is driving the company’s growth and valuation.
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Rheinmetall is the leading NATO supplier of 155mm artillery shells, a producer of tanks, air-defense systems, and autonomous military vehicles, and a growing player in electronic warfare and AI-enabled battlefield systems. The company is rapidly expanding its capacity as it invests in new factories and scales up operations to meet sustained military demand well into the 2030s.
Unlike many cyclical industrial stocks, Rheinmetall’s robust order pipeline is funded by multi-year sovereign budgets and down-payment structures, mitigating many standard commercial risks. Furthermore, the company’s order book now exceeds €30 billion, reflecting multi-year contracts.
The company is profitable, with a return on equity of 22% and annual revenues rising at a 30% rate. The ammunition division posted a 28% operating margin, significantly above industry averages.
Rheinmetall has a wide moat and is on track to capture 20%-25% of NATO Europe’s equipment spending through 2030. The company sees significant opportunities well beyond Ukraine and operates across a wide spectrum of defense equipment and services.
I looked at this stock last year, but its valuation was quite elevated. The stock has since pulled back about 50% from its September 2025 high, giving us a good entry price.
With rising European defense budgets, NATO’s rearmament, and Rheinmetall’s expansion in high-margin ammunition and battlefield tech, the stock presents one of the strongest investment cases in the global defense sector.
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