A small Swedish enterprise, Mildef Group AB, has emerged as the best-performing defense stock in Europe for 2026, with its chief executive attributing the surge to a "third wave" of military expenditure that prioritizes computer systems and drones over conventional tanks and ammunition. The company, which specializes in rugged laptops, servers, and display screens for armored vehicles, has seen its share price climb over 80% year-to-date, fueled by persistently rising European defense budgets. While large-cap defense names like Rheinmetall AG and Saab AB have seen their gains moderate this year, Mildef's momentum has accelerated.

Mildef CEO Daniel Ljunggren explained the evolution of defense spending in a recent interview, noting that "the first wave was full-scale mobilization, focusing on combat supplies like ammunition, boots, and tank fuel," which referenced the emergency phase following the 2022 outbreak of the Russia-Ukraine conflict. Following that period, a flood of major contracts flowed to large defense conglomerates. "We are now in the third wave, which represents the higher echelons of this ecosystem," Ljunggren stated.

Based in Helsingborg, Sweden, Mildef has secured a series of significant orders in recent months. In July, the company announced the signing of two seven-year framework agreements: one to supply command and control systems to the Swedish Armed Forces, with a contract value of up to SEK 1.5 billion (approximately $160 million), and another for the German Bundeswehr, valued at up to €527 million (approximately $610 million). As the focus of arms procurement shifts from traditional hardware toward drones and their guidance technologies, broader defense spending is also benefiting other enterprises. Defense tech firms such as Kongsberg Gruppen ASA and Cohort Plc have rebounded after underperforming their peers last year, while aviation supplier Senior Plc, currently a takeover target, has also featured prominently among gainers. Submarine drone manufacturer Exail Technologies SA has seen its shares surge roughly 50%, driven by increased demand for its products amid mine threats in the Strait of Hormuz. Thales SA signed a binding agreement in early July to acquire the company. Submarine builder TKMS AG & Co. KGaA has also stood out, thanks to substantial orders from Germany and Canada.

With large-cap defense hardware groups continuing to underperform, analysts are attempting to gauge the sector's next trajectory. In a research report published on August 11, Barclays analysts, led by Afonso Osorio, expressed an optimistic outlook and initiated coverage on several major defense companies, though they recommended a more selective investment approach. Osorio noted expectations that "stock differentiation will become more pronounced as visibility, portfolio quality, and execution capability grow increasingly important to investors."

Meanwhile, Mildef is concentrating on expanding its production capacity to meet rising demand and gain market share in an industry that typically relies on long-term partnerships with local players. Ljunggren indicated that mergers and strategic collaborations hold significant importance in the company's strategy, with the group maintaining high vigilance toward overseas market opportunities. "This radar is on around the clock," Ljunggren said.