Defense Spending Surge Boosts Rolls-Royce and BAE Systems Profits: NATO Summit and AI Datacenters Drive Growth

Global governments' increased defense spending in 2026 has propelled Rolls-Royce and BAE Systems to raise their earnings guidance. Rolls-Royce raised its operating profit forecast to £4.7bn-£4.9bn, up 17% from previous estimates of £4bn-£4.2bn. Free cash flow expectations also jumped to £3.8bn-£4bn. BAE Systems raised its profit outlook to 10%-12%, up from 9%-11%. Rolls-Royce shares surged 5.5%, leading the FTSE 100. BAE CEO Charles Woodburn noted the 'highly volatile' global threat landscape but remains confident in long-term growth. Rolls-Royce's power generation unit benefited from AI datacenter demand, while its defense sector gained from NATO Summit commitments, including Saab GlobalEye and MQ-4C Triton projects.

The defense spending boom has made Rolls-Royce and BAE Systems the clear winners. New NATO agreements, along with US-Iran tensions and Turkey's Typhoon deal, are securing their future growth. However, the Baltic Dry Index could see increased vessel demand, though energy costs and canal delays remain risks.