Europe’s High-Flying Defense Stocks Are Losing Momentum

A runaway rally in European defense stocks has hit a wall on concern that profits aren’t rising fast enough to justify valuations that are now richer than technology.

Rheinmetall AG, Germany’s largest defense company, has dropped around 20% since peaking last year, and a broader index of stocks has largely flatlined since mid-January in its weakest start to a year since 2021. New listings are no longer instant hits; submarine parts maker Gabler Group AG fell on its first day of trading this month.