Defense stocks in panic – Rheinmetall tumbles 13%

Key takeaways

• Germany may abandon its plan to build six F126 frigates and instead purchase eight smaller Meko A-200 vessels, raising doubts about the scale of future defense contracts.
• Rheinmetall was hit hardest, with shares falling as much as 14%, as the company had been expected to become the lead contractor for the program, potentially worth up to €12.8 billion.
• Selling pressure spread across the broader European defense sector as investors increasingly question how much of the announced military spending will ultimately translate into revenues for defense contractors.

European equities opened Wednesday’s session cautiously, with both the STOXX 50 and STOXX 600 trading close to flat following the previous technology-led selloff. Investors remain focused on developments in U.S.-Iran negotiations and Micron’s earnings report later today, which could provide fresh insight into the outlook for the semiconductor sector. At the same time, European defense stocks came under significant pressure after reports that Germany may abandon plans to build six F126 frigates, which would have been the country’s largest naval procurement program since World War II. According to the Financial Times, Berlin is considering scrapping the multi-billion-euro F126 program and replacing it with the purchase of eight smaller Meko A-200 frigates.

• Rheinmetall was among the hardest-hit stocks, as the company had been expected to become the lead contractor on the F126 program, potentially worth up to €12.8 billion.
• The company was set to take over the contract from Dutch shipbuilder Damen Naval after years of delays, although final approval from Germany’s budget committee had not yet been granted.
• Selling pressure spread across the broader European defense sector, with Hensoldt down 2.9%, Renk 4.0%, Saab 2.6%, Leonardo 3.5%, and BAE Systems 1.6%.
• The decline reflects weakening sentiment toward defense stocks in 2026 as investors increasingly question how much of the announced military spending will ultimately translate into contractor revenues.
• A restructuring of the F126 program would also represent a setback for Germany’s defense ambitions, given Berlin’s pledge to build the “strongest conventional army in Europe” by 2039.

Source: xStation5 Rheinmetall Loses Its Contract Certainty Premium

Rheinmetall came under intense pressure after reports that Germany may cancel the purchase of six F126 anti-submarine frigates and redirect the order to TKMS. The stock was down nearly 17% at its intraday low, marking its largest single-day decline since April 2025. For investors, the issue goes beyond the potential loss of a major contract. The market is beginning to challenge the assumption that Germany’s defense spending commitments will automatically translate into revenue growth for its largest defense contractors. At the same time, investors are increasingly pricing in the possibility of a gradual de-escalation of conflicts in both the Middle East and Ukraine, reducing enthusiasm for the defense sector’s previous rally.

According to Morgan Stanley analysts, cancellation of the program could result in approximately €2 billion in write-downs for Rheinmetall. This is particularly significant because management had reportedly been confident the contract would be secured before the summer parliamentary recess. Meanwhile, TKMS shares rose as much as 12%, suggesting that investors are not necessarily pricing in lower German defense spending overall, but rather a shift in which companies are likely to benefit from future contracts. An additional source of pressure comes from the planned IPO of KNDS in Frankfurt and Paris. Current shareholders – the French state and Wegmann & Co are expected to offer a 20% stake in the company. For investors, this creates another avenue for exposure to the European defense sector and could reduce the concentration of capital flows into Rheinmetall alone.

Source: xStation5

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