Portfolio Booster 2026: Staying Ahead of NATO's Military Build-Up with Rheinmetall, Volatus Aerospace, and TKMS

Rheinmetall: Mega Deals and a Disappointment

The exit from the civilian business is now complete: the sale of the Power Systems division to AEQUITA for EUR 350 million marks the end of the era as an automotive supplier. Yet this supposed breakthrough is overshadowed by a setback that will cost billions. The German Federal Ministry of Defence halted the F126 frigate program and opted for eight smaller Meko A-200 DEU frigates from thyssenkrupp Marine Systems. It had been expected that Rheinmetall would win the contract. The cost explosion from an initial EUR 10 billion to over EUR 18 billion makes the decision understandable; for Rheinmetall, however, it means the loss of a prestigious major naval contract. Analysts at JPMorgan already see the entire order intake for 2026 at risk.

The operational news, on the other hand, is very positive. The follow-on procurement of 23 "Büffel" recovery tanks in the mid-three-digit million range, the start of series production of the Caracal airborne assault vehicle with a volume of up to EUR 1.9 billion, and the first ATACMS co-production with Lockheed Martin in Unterlüß demonstrate a steady flow of orders. In particular, the acquisition of a 51% stake in the Croatian specialist DOK-ING and the project leadership for InterRoC VII in the field of autonomous military convoys underscore the strategic realignment. Rheinmetall is thus expanding its expertise in the field of unmanned ground vehicles. This is a smart move given the market's future potential and a shortage of personnel in armed forces worldwide.

From its September high, the stock has lost more than 50%. Analysts remain optimistic, however. The average price target is EUR 1,721. The RSI of about 35 almost suggests an oversold situation, but a sustained recovery will only occur if the order backlog can be cleared quickly. The lost naval contract weighs heavily, but with the potential Boxer wheeled armoured vehicle program worth over EUR 12.5 billion, the next mega-deal is already in the starting blocks. European defence budgets continue to grow, regardless of the outcome of the talks in Ukraine. The stock is currently trading at around EUR 971.30.

Volatus Aerospace: Canada's Rising Star in the NATO Drone Business

Canada's Volatus Aerospace is currently undergoing a remarkable transformation. The former drone manufacturer has evolved into an integrated aerospace and defence group that is increasingly focusing on NATO contracts. The latest capital increase of CAD 34.5 million and the expanded production facility in Mirabel underscore this strategic direction. In particular, the defence pipeline now exceeds the commercial business. This is a clear signal of the company's strategic realignment. Insiders hold approximately 21% of the shares and have not sold any shares since the company's founding, which speaks to their high confidence in the company's long-term development.

Transport Canada's recent certification of the Canary system for civilian BVLOS use in populated areas is a crucial milestone. The integrated collision-avoidance technology positions Volatus as one of the few certified providers for complex commercial missions. The company's proprietary V-Cortex™ AI platform can also be integrated into drones from third-party manufacturers. This represents a strategic advantage when dealing with defence customers that have existing fleets. With an expected annual recurring revenue base of approximately CAD 20 million and a gross margin of 32%, the business model is demonstrating increasing operational leverage.

The geopolitical situation plays into Volatus's hands. NATO countries are increasing their defence spending, and the demand for reconnaissance systems is growing. Participation in the US Drone Dominance Program and the cooperation with Ukraine open up additional options. The Mirabel facility can generate CAD 250 million in revenue at full capacity, and an expansion site is already available. Compared with pure defence stocks, the stock trades at a discount despite a more balanced risk profile due to its commercial base. The upcoming quarterly results will show whether the NATO contracts can be profitably used to support the new infrastructure. The share is currently trading at around CAD 0.54.

TKMS: Order Boom and Operational Challenges

The Canadians have decided that TKMS will build up to twelve Type 212CD submarines. This is the largest single order in the company's history. Together with the recently approved Bundeswehr frigate order for four MEKO® A-200 DEU units plus options, the order backlog is likely to have increased to over EUR 30 billion. The order book is full for the next few years, and capacity utilization is secured. For a company that only spun off from thyssenkrupp in October 2025, this is an impressive start to its independence.

The half-year results paint the expected picture: revenue up 10%, operating profit up 14%. But appearances are somewhat deceptive. Currency losses in the surface treatment business have nearly wiped out the operational improvements. Order intake naturally fluctuates with large-scale projects; that is normal. Margin development remains the key indicator. Here, it is evident that legacy programs with low margins are winding down, while new projects are slowly gaining momentum. This is no cause for concern, but it is a point worth keeping an eye on.

The defence sector is benefiting from geopolitical tensions. NATO countries intend to increase their defence spending significantly. Maritime equipment is also high on the priority list. The challenge lies less in demand than in execution. Supply chains must operate smoothly, and capacities must be expanded. Management will need to provide clarity during the ongoing roadshow in Singapore. Investors here are betting on the company's long-term track record and accepting the volatility inherent in large-scale projects. The share is currently trading at around EUR 80.90.

The 2026 NATO rearmament is not an economic stimulus program, but rather a structural shift toward autonomous, AI-supported, networked systems. Rheinmetall remains the indispensable systems partner for land systems despite losing a major naval contract, but must weather the growing pains of transformation. Volatus Aerospace is the operational beacon of hope for autonomous aerial reconnaissance, whose commercial foundation significantly mitigates the risk. TKMS, on the other hand, is enjoying a boom in orders as a key supplier to the maritime sector, but is struggling with the pace of implementation. Valuations are volatile, but the long-term demand driven by defence budgets makes all three key beneficiaries of this turning point.