Global Defense Spending Hits Record High, Projected to Exceed $4.4 Trillion by 2035

Global defense budgets reached an unprecedented $2.9 trillion in 2025, representing 2.5% of global GDP and marking the 11th consecutive year of increase. A new study by Deutsche Bank reveals that the revenues of the world's top 100 aerospace and defense companies surpassed $1 trillion last year for the first time, with profits surging by 46% to a record $124.4 billion. Markus Müller, head of ESG and the Global Investment Office at Deutsche Bank, forecasts that based on a 4.7% annual growth rate over the past five years, international defense spending will reach approximately $3.5 trillion by 2030 and exceed $4.4 trillion by 2035.

Müller highlights that while the United States has the largest defense budget at $954 billion, significantly ahead of China ($336 billion) and Russia ($190 billion), Europe is at the forefront of the current global growth trend. The European Union's Readiness 2030 program aims to mobilize over €800 billion for defense investments by 2030, focusing on areas like air defense, drones, and cyber capabilities. This is further bolstered by NATO's 2035 target for member states to invest 5% of their GDP in defense budgets.

Recent conflicts, including Russia's invasion of Ukraine and the Middle East conflict, have significantly accelerated defense spending and prompted a re-evaluation of European defense readiness and deterrence. These events have underscored vulnerabilities in critical infrastructure and energy supply routes, leading governments to prioritize investments in missile defense, drones, ammunition, intelligence, surveillance, reconnaissance, and command and control systems. The study also notes that the global military drone market is expected to grow from approximately $17 billion in 2025 to over $50 billion by 2035, with the counter-drone systems market projected to jump from $2 billion to $15 billion.

Deutsche Bank believes this substantial growth in defense companies is not a bubble but a sustainable trend, citing the proposed U.S. defense budget for 2027, which aims for nearly $1.5 trillion. The study also points to the strong performance of defense stocks, with the MSCI Aerospace and Defense index growing over 120% in the five years leading up to October 2026, outperforming the broader MSCI World index. Israeli defense companies are noted for their "combat-proven" products, which enhance their competitive edge in the global market.

The report details the evolution of defense technology since World War II, with information warfare shifting to AI-based surveillance, cyber warfare becoming a new domain alongside air, sea, and land, and air combat increasingly relying on unmanned aerial vehicles. Space is also identified as a critical military domain due to the reliance of modern forces on satellites for communication, navigation, and intelligence. Müller expresses a positive long-term outlook for aerospace and defense companies, particularly European ones, expecting future returns to be more closely tied to earnings rather than valuation expansion.