It has all the markings of a déjà vu from the meme stock boom of 2021, but this time the stage is Europe. Traders aren’t chasing GameStop or AMC, but European defense stocks.
In a surprising twist of market dynamics, a swarm of European retail investors have taken on heavyweight US hedge funds, triggering a sharp rally in shares of companies like Germany’s Hensoldt HAG and Renk R3NK, Austria’s Steyr Motors 4X0 and French satellite operator Eutelsat ETL.
A Reddit-Fueled Rally in Defense?
According to a recent Financial Times report, hedge funds including Marshall Wace, Qube Research & Technologies and Millennium wagered against several European defense stocks, viewing their valuations as unsustainably high. Their short positions suggested confidence that prices would fall. But a loose collective of retail investors—some organizing via Reddit—had other plans.
The result: a staggering rally, most likely as bets that the stocks would fall have had to be reversed. Since the beginning of the year, shares of Renk have surged by 137.3%, Hensoldt by 81.7%, and Eutelsat by 80%. These figures dwarf the 30.9% year-to-date return of the broader Morningstar Developed Markets Europe Aero & Defense Index, suggesting that something more than just rising defense budgets is driving the momentum. Short selling – a strategy that involves borrowing shares to sell them with the intention of buying them back at a lower price – can turn painful quickly when the market moves in the opposite direction.
Unlike the GameStop saga, where nostalgia mixed with brand loyalty, the rally in defense stocks has a more pragmatic character. But the parallels remain: a sudden, retail-led spike in stocks that Wall Street bet against, followed by forced covering of short positions and eye-popping returns – at least temporarily.
The Lesson: Retail Investors Should be Wary of Short-Term Hype
“Retail investors should be wary of chasing short-term hype and instead evaluate defense stocks based on fundamentals, long-term demand visibility, and their positioning within the value chain,” says Morningstar equity analyst Loredana Muharremi. A handful of European defense stocks remain attractive even after the recent rally, says Muharremi.
“While we maintain a positive view on the European defense sector, and believe that smaller contractors are well-positioned to benefit from increased defense demand through their roles in the broader supply chain, we caution that retail investors should remain mindful of the current uncertainty”, according to Muharremi.
“Despite growing political momentum—including calls like Mark Rutte’s for defense spending to reach at least 3% of GDP—we still lack official commitments at the national level. Key questions remain around how much each country will actually allocate, how much of that spending will be directed toward equipment benefiting listed contractors, and how sustained this higher level of defense investment will be over time.”
Steyr Motors Shares Soar, then Nosedive
Steyr Motors is another stock that came into the spotlight of retail investors on Reddit’s “r/wallstreetbetsGER”. The company produces specialized diesel engines that are used in military vehicles and boats. The stock was listed in Frankfurt in October 2024, Morningstar Pitchbook data show, followed by its Vienna Stock Exchange debut in February 2025. With only 20% of shares in free float, and much of that likely in long-term hands, the stock is highly illiquid and prone to sharp moves. The Reddit-fueled hype and sudden buying sprees appear to have helped push the price sky-high before it crashed just as quickly: After reaching EUR 240 in mid-March, Steyr shares have since fallen to EUR 60.
Regulators are taking notice. While German Financial Supervisory Authority BaFin declined to comment to Morningstar, it says unusual price moves are routinely examined for signs of market manipulation, insider trading, or violations of ad-hoc disclosure requirements.
The company’s majority owner, Munich-based private equity firm Mutares, said interest surged after Germany’s defense spending plans were announced earlier in March. “We received strong buying interest from banks and decided to slightly increase the free float,” the firm’s CIO told German business weekly Der Aktionär. This may have prompted the subsequent rapid fall of the stock.
Steyr Motors Stock Price
Source: Morningstar Direct. Data as of April 01, 2025.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
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