Core Viewpoint - The CEO of Rheinmetall, Armin Papperger, warns that the military drone manufacturing business may represent the largest bubble in the defense sector, marking the first public skepticism from a major industry leader regarding this market [2][4][5]. Group 1: Market Dynamics - Rheinmetall's stock price surged from €4.2 billion before the Ukraine conflict to €86 billion, reflecting a cumulative increase of 1948%, benefiting from a new arms race in Europe [2][5]. - The company anticipates its order backlog could reach €120 billion by mid-next year, driven by increasing defense budgets in Europe, particularly Germany [8]. Group 2: Industry Challenges - Papperger highlights that insufficient government orders for drones make it unlikely for companies to achieve sales targets of €1 billion by 2030 [6]. - The prices of short-range military drones have dropped to around €1,000, while long-range drones are priced at approximately €2,500, complicating profitability [6]. Group 3: Strategic Goals - Rheinmetall aims to increase its sales from €9.75 billion last year to between €40 billion and €50 billion by 2030, with a target profit margin of 20% [7]. - The company plans to divest its civilian business by Q1 or Q2 of 2026, transitioning to a pure military manufacturer and expanding into aerospace and naval sectors [9]. Group 4: European Defense Spending Trends - The European Defense Agency reports that EU member states' defense spending may exceed 2.1% of GDP by 2025, reaching €392 billion, reflecting a commitment to enhance military capabilities [9]. - A report indicates that defense spending among EU countries is projected to increase by 19% in 2024, amounting to €343 billion, which is 1.9% of GDP [9]. Group 5: Investment Opportunities - Investment analysts suggest that approximately 23% of the projected $2.9 trillion increase in core defense spending will be allocated to equipment purchases, benefiting both European and U.S.-Korean defense contractors [10]. - Additionally, about 54% of the broader security spending increase is expected to be directed towards energy and infrastructure, potentially boosting demand for critical materials and energy equipment in Europe [10].