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Euphoria for drones, but tanks remain in demand

2026-08-10 16:08:51Kosova&Bota SHKRUAR NGA REDAKSIA VOX
Euphoria for drones, but tanks remain in demand
Euphoria for drones, but tanks remain in demand

German military-industrial plants have a lot of work to do. But modern warfare with drones, software and artificial intelligence is fundamentally changing the industry. Startups are becoming increasingly important.

Until a few months ago, Germany's Rheinmetall, Renk or Hensoldt were considered the almost certain winners of the European arms race on the stock exchange. However, since the fall of 2025, the picture has changed significantly. Many of the major players in the military industry have fallen sharply, with Rheinmetall at its peak losing more than 50 percent from its all-time high. Long order books in themselves are clearly no longer enough for investors.

For Thomas Buckard of financial advisory firm MPF, the correction is largely a consequence of previous excessive euphoria in the markets.

"The valuations of military industry companies have risen due to investor enthusiasm to simply very high levels," Buckard says in an interview with ARD. According to him, exchange rates have already taken into account a large part of the expected business development.

"Software becomes a weapon of war"

But behind this reassessment lies more than just the usual lucidity after a stock market rally. A structural change is taking place in the military-industrial sector: the wars in Ukraine and the Middle East demonstrate the importance of drones and modern defense technology.

"Software is becoming a weapon of war," says MPF board member Buckard. "At the same time, drones are changing the cost structure." Indeed, they are significantly cheaper than manned combat aircraft and can therefore be used in larger numbers.

Modern warfare thus determines which technologies are militarily important - and which companies have the necessary know-how. While the focus once was on tanks and mines, today, according to Buckard, it is on drones, missiles and guided weapons.

Record investments in military industry startups

Small, specialized companies are gaining importance because they can often develop their products more quickly and adapt them to new requirements. This is changing the power relations within the military industry.

For Mathias Beil, head of private banking at Sutor Bank in Hamburg, this change has long been evident: "The combination of drones, sensors, software and artificial intelligence is no longer a narrow field for experts, but a clearly defined area of ​​growth. This can also be seen in financing circles. More and more companies are investing in these products."

Investments in military technology startups have increased significantly in recent years. According to McKinsey calculations, in 2025, more venture capital was invested in European military industry startups than ever before: 2.6 billion euros - compared to around 200 million euros in 2021. In the US, however, the volume was almost three times higher.

Large corporations rely on cooperation

MPF board member Buckard expects that established defense companies, such as Rheinmetall, Airbus and BAE Systems, will use some of their high profits to buy shares in other companies in the future. As a result, traditional weapons manufacturers are increasingly becoming technology investors.

But the stakes in the new companies themselves may not be the end of it. Sutor Bank expert Beil expects the big military industry companies to go a step further: "It will not be possible to avoid cooperating with these smaller companies, perhaps even acquiring these companies, in order to really bring this knowledge within the company."

How closely new companies and established bidders are working together is shown by the competition for an unmanned combat aircraft for the Bundeswehr. The Munich-based start-up technology company Helsing is developing the artificial intelligence-assisted CA-1 Europa for this and is collaborating with sensor specialist Hensoldt from MDAX.

Helsing is an example of the rise of new military technology providers. After a $1.8 billion funding round in July, the company is now valued at $18 billion, making it the most valuable European military start-up.

Other German startups are also taking up key parts of the new world of the military industry. Quantum Systems, valued at $8 billion in its latest funding round, is developing, among other things, reconnaissance drones. The startup Spleenlab is supplying artificial intelligence-based software for this.

Euphoria for drones, but tanks remain in demand
Tanks remain irreplaceable

Munich-based company SE3 Labs has developed an artificial intelligence platform that combines data from various sensors and creates a three-dimensional picture of the situation on the battlefield.

Tanks and ammunition remain wanted

Despite the boom in drones and artificial intelligence, classic military equipment is not becoming a superfluous commodity. Drones alone cannot defend the country; modern armed forces still need tanks, planes, ships, and ammunition.

Market researcher Fortune Business Insights estimates that the global armored vehicle market will grow from $25.2 billion in 2025 to $41.5 billion in 2034.

The increase is not only due to increased defense spending in light of geopolitical tensions, but also due to the modernization of aging vehicle fleets.

"Purchasing replacement equipment and replenishing current pallets is very, very important for large defense industry businesses," says Sutor Bank's Beil.

Perhaps the biggest obstacles for large defense industry businesses at the moment are not a lack of orders or increasing competition from new specialized businesses, but limited production capacities and long delivery times.

Capital market expert Beil describes it this way: "The order books are full, but it will take time for this to really be reflected in corresponding margins and profits."

Consulting firm McKinsey estimates that order backlogs from major Western European defense companies are around 20 to 100 billion euros - in some cases, this results in estimated delivery times longer than six years.

Angela Göpfert, ARD


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