Berlin is reassessing which capabilities are most critical on today's battlefields. Lessons from the wars in Ukraine and Iran have made it clear that drones are a game-changer. So Berlin is moving cash from traditional ammo toward drone technology.
That is bad news for Rheinmetall, the world's largest maker of 155mm artillery shells. The company is heavily focused on tanks and artillery, and that has hurt its appeal with investors. Mbw Research AG analyst Jens-Peter Rieck commented, "Even the German government now treats tanks and artillery as no longer the No. 1 priority."
Rheinmetall's dramatic growth from a €4.2 billion company before the Ukraine war to a €49 billion giant reflects the previous boom in conventional munitions.
The stock has taken a beating. The 30% drop follows a brutal one-day drop of 19% last month, when Berlin killed a warship deal. On top of that, China hit Rheinmetall with export controls as part of a group of 14 European companies targeted.
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Still, the company is worth a lot more than it used to be.
The German defense ministry insists that buying ammunition is still a priority. A ministry spokeswoman said procurement of ammunition "is and will remain a priority."
But the preliminary budget numbers tell a different story. The €9.6 billion in planned 2027 munitions spending includes €7.7 billion from the regular budget and €1.9 billion from a special defense fund. Compare that to less than €4 billion in total German munitions spending back in 2025.
The catch: The draft 2027 budget is not final yet. The government could still amend it.
For anyone holding Rheinmetall stock - or thinking about buying it - the short-term picture is messy. Analysts at Mediobanca SpA noted that the preliminary budget allocation "may fuel the ongoing debate around the reprioritization of German defense spending."
Edmond de Rothschild's head of global investment research, Hervé Prettre, warned that "there could be some further guidance cuts on Rheinmetall over the short term." The company is set to report second-quarter results on August 6, 2026, and investors will be watching to see if it lowers its full-year outlook.
On the other hand, analysts are not running for the exits. That suggests the pros still see long-term value.
Meanwhile, the broader European market is doing fine. The Euro Stoxx 600 index is up 9.6% year-to-date. But a group of European defense stocks tracked by Goldman Sachs has barely moved.
Rheinmetall's rise from a €4.2 billion company to a €49 billion giant was fueled by surging demand for traditional artillery. Now the same government that enabled that growth is signaling a strategic pivot toward drones. The company's ability to adapt to this new reality will determine its long-term trajectory.
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