European leaders are being urged to take more responsibility for their own defense as the U.S. signals a shift away from its traditional role. 

Officials like JD Vance and Defense Secretary Pete Hegseth argue that NATO members need to increase defense spending significantly, even though most currently fall short of existing targets. 

This change is prompting many European countries—especially those near Russia—to ramp up their military budgets, creating new opportunities for the arms industry.

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Europe can no longer count on the U.S. for protection…

That was the message from Vice President JD Vance at the Munich Security Conference earlier this week.

Speaking to a room of international dignitaries, Vance said President Donald Trump has made it clear “he believes that our European friends must play a bigger role in the future of this continent.”

His comments came just two weeks after similar ones from Defense Secretary Pete Hegseth.

At a NATO meeting on February 12, Hegseth pushed for Europe to take a stronger hand in its own defense and rely less on U.S. assistance.

The U.S. has urged European nations to increase their defense spending for years. Many of them brushed off the warnings, taking American military support as a given.

But as the Pentagon shifts its focus away from Europe under Trump, NATO allies are beginning to grasp the reality. They’ll have to defend themselves against military threats.

The U.S. currently makes up two-thirds of NATO’s defense spending, despite accounting for just over 50% of combined GDP.

And we’ve been the continent’s primary security provider since the creation of NATO in 1949.

But the Trump administration has had enough. Hegseth is pushing for NATO members to spend 5% of GDP on defense needs each year, well above the current 2% target.

That’s a tall order, considering only 23 of the 32 NATO members hit 2% last year.

Some countries—particularly the ones closest to Russia—are already stepping up their defense efforts.

Lithuania and Estonia intend to raise military spending to more than 5% of their respective GDPs. Poland has already surpassed 4%.

And while Hegseth’s 5% goal is probably unrealistic for all member states, higher levels will likely become standard practice.

NATO is expected to raise its defense spending target to 3% or 3.5% at its next summit in June.

This defense-spending surge isn’t just about paying soldiers or covering administrative costs.

Europe will need to replace the weapons, equipment, and advanced military technology it has been getting from the U.S.

Entire countries—including giants like Germany and France—could nearly double their defense budgets over the next five years.

The biggest winners won’t be slow-moving Pentagon contractors tied up in bureaucracy. They’ll be the arms manufacturers producing cutting-edge equipment to fortify Europe.

Investors believed for a long time that U.S. defense contractors were the main beneficiaries of global military spending. But that’s no longer the case.

People who recognize this shift early can get ahead of the market—and capitalize on new opportunities in defense.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research