Shares in European aerospace and defence companies soared to record highs this week, elevating expectations for the continents military tech startups.Britains BAE Systems leapt by 9% on Monday, while Germanys Rheinmetall jumped by 14%. Stocks in Swedens Saab, Italys Leonardo, and Frances Thales also boomed. By the days end, the Stoxx Europe aerospace and defence index had hit an all-time peak.Military tech firmshave also been surging. Kate Leaman, chief market analyst at online broker AvaTrade, said these companies have huge potential for growth particularly those with AI-driven solutions.Were already seeing a shake-up in the defence sector, with AI-focused players like Palantir outperforming more traditional defence giants, Leaman told TNW. This suggests that cutting-edge, tech-centric firms could possibly capture a sizeable share of the market.Register NowEuropean defence tech startups have also grabbed investors attention.In 2024, they attracted a record $5bn in VC funding a 24% increase over the previous year.The momentum has raised expectations of future public listings.Many defence tech startups havent gone public yet, but with the market heating up and investor interest growing, theres a strong possibility well see more IPOs in the near future, Leaman said.That could open the door to fresh investment opportunities and raise the profile of these emerging companies.The push for defence techThe spending spree comes amid mounting concerns about Europes military sovereignty.Leaders across the continent have been shaken by the Russia-Ukraine war and tensions with the Trump administration.Ukraines President, Volodymyr Zelensky, has called for the creation of an army of Europe. His French counterpart, Emmanuel Macron, has urged his allies to wake up and spend more on defence. European Commission President Ursula von der Leyenwants to trigger an emergency clause exempting military expenditures from the fiscal restraints on EU countries.A growing share of their budgets is going to military tech and startups are beginning to cash in.According to a new report from McKinsey, investment in European defence tech startups increased by over 500% between 2021 and 2024 compared to the previous three years.The report added, however, that the sector remains about five years behind the USs in terms of maturity.A major factor in this gap is the struggle to secure late-stage funding a common problem for European startups across industries.Nonetheless, the rise of defence tech is set to continue.Military spending is rapidly moving away from traditional hardware toward software, drones, and robotic solutions, Leaman said. As a result, defence tech companies specialising in these areas may enjoy increasing demand for their products and services.Defence tech is a key theme at this years Assembly, the invite-only policy track ofTNW Conference. The event takes place on June 19 and 20 a week before the NATO Summit arrives in Amsterdam. Tickets for TNW Conference arenow on sale. Use the code TNWXMEDIA2025 for an exclusive subscriber discount. Story by Thomas Macaulay Managing editor Thomas is the managing editor of TNW. He leads our coverage of European tech and oversees our talented team of writers. Away from work, he e (show all) Thomas is the managing editor of TNW. He leads our coverage of European tech and oversees our talented team of writers. Away from work, he enjoys playing chess (badly) and the guitar (even worse). Get the TNW newsletterGet the most important tech news in your inbox each week.Also tagged with