Investing.com -- Bank of America said U.S. defense companies are likely to benefit from Europe’s expanding military budgets, as the region increases spending by hundreds of billions of dollars over the next few years.

The UK plans to raise defense spending to 2.5% of GDP by 2027, while the EU has moved to unlock €800 billion in additional military funding. Germany is also adjusting its debt rules to support a higher defense budget.

Despite European governments’ stated preference to invest domestically, supply constraints in Europe’s defense industry will likely sustain reliance on U.S. firms for key weapons systems. Missiles and munitions—including HIMARS, AMRAAM, AiM-9X, and Patriot/PAC-3 missile defense systems—are expected to be primary beneficiaries, along with the F-35 fighter jet program, though new orders may be limited due to an existing backlog.

Beyond complete weapons systems, U.S. subsystems and military components are also poised for growth through direct commercial sales. These include tactical radios, sensors, and computing platforms, with RTX, L3Harris, Northrop Grumman (NYSE: NOC ), and Leonardo DRS among the key players.

BofA noted that U.S. trade and diplomatic policies could shape demand. Tariffs on European nations may push them toward greater U.S. procurement, while strained U.S.-NATO relations could encourage more domestic investment in Europe’s defense industry.