Rheinmetall's Artillery Business Loses Its Luster as Defense Budgets Siphon Funds to Drones

BofA cuts Rheinmetall target to €1,300, forecasting €10B revenue shortfall as artillery demand wanes; stock down 39% YTD, hit by Damen legal dispute.

The defense industry's old certainties are crumbling. For Rheinmetall, the shift is not about losing a single contract or facing a margin squeeze — it is about the very nature of modern warfare changing faster than its core product line. Bank of America delivered that message this week, slashing its price target on the stock from €1,770 to €1,300, while keeping a buy rating. Analyst Benjamin Heelan cut his 2030 revenue forecast for the weapons and munitions division by a staggering margin: €10 billion against Rheinmetall’s own target of €14 to €16 billion. The culprit, according to BofA, is a deliberate reallocation of military budgets away from traditional artillery and toward drones and air defense systems.

The artillery business, once the backbone of Rheinmetall's growth story, is now expected to generate only €3 billion in revenue — a far cry from the €5 to €6 billion the bank had previously modeled. Air defense, by contrast, is seen as a stronger opportunity, with BofA projecting €5 billion in sales, more than the company itself guides for. The naval division is also underperforming expectations, with an estimated €2 billion against a corporate target of €5 billion. These adjustments drag Rheinmetall’s total 2030 revenue estimate down to €35 billion, from an earlier €50 billion.

The market had already begun pricing in that pessimism. Rheinmetall shares ended Tuesday at €975.00 and have since oscillated in a volatile range, touching €965.10 at one point on Wednesday before recovering to €975.90 — a gain of just 0.09% for the session. But the longer-term picture is stark. The stock has lost 8.23% in seven trading days and 14.44% over the past month. Year-to-date, the decline stands at 39.06%, and over twelve months the loss widens to 46.83%. From the all-time high of €1,995.00 reached in late September 2025, the shares have surrendered more than half their value, sitting just 8% above the 52-week low of €902.50 set in late June 2026.

Technical indicators confirm deep weakness. The stock is trading 14.62% below its 50-day moving average of €1,142.99 and 35.22% below the 200-day average of €1,506.47. The relative strength index of 35.9 points to oversold conditions, while annualized 30-day volatility of 68.93% underscores the extreme nervousness surrounding the name. Rheinmetall’s market capitalization has shrunk to €46.23 billion.

Compounding the strategic repricing is a specific legal headache. The Dutch shipyard Damen is taking legal action against German Defense Minister Boris Pistorius over the termination of the F126 frigate program in late June. Rheinmetall had offered to take over the contract — originally awarded in 2020 for four frigates and expanded in 2024 to six ships — for €15 billion. Pistorius instead opted for the Meko-200 design. The fallout includes a potential revenue loss of up to €300 million for Rheinmetall in the current fiscal year, disclosed in an ad-hoc announcement on July 2. The company’s lawyer, Gauweiler, labeled the decision arbitrary.

Yet Rheinmetall is hardly standing still. The company's pipeline of new contracts remains thick. On Tuesday, Rheinmetall MAN Military Vehicles took over project leadership for "InterRoC VII," a Bundeswehr research program aimed at developing highly automated convoys that combine different vehicle types — a step toward reducing soldier risk in dangerous zones. The group also recently supplied its new RH1412 artillery ammunition, produced in-house in Lower Saxony, to Ukraine for the first time. Additional orders include decoy launchers for Kuwait and laser weapon systems for the German Navy.

A separate expansion into space was announced on July 15, when Rheinmetall signed a letter of intent with Norway’s Space Norway to combine their radar technologies — C-band from Space Norway and X-band from Rheinmetall’s ICEYE subsidiary, under the name SPOCK-1 — for maritime surveillance in the Arctic and North Atlantic. The partnership is embedded in the bilateral Hansa agreement between Germany and Norway. Timo Haas of Rheinmetall and Morten Tengs of Space Norway expressed optimism about closing monitoring gaps in the strategically vital region.

Despite all this activity, the market is focused on cash. The heavy investment cycle — a new plant in Unterlüß, Lower Saxony, just came online — is tying up liquidity precisely when investors want to see higher conversion of earnings into free cash flow. Analysts at JPMorgan and MWB Research have joined the cautious chorus: one warned of rising uncertainty, while MWB Research’s Rieck dropped his buy recommendation entirely.

The next major inflection point is August 6, 2026, when Rheinmetall releases its second-quarter results. The market will demand answers on how the company plans to offset the €300 million hit from the F126 cancellation and how margins hold up under the strain of ramped-up production. For a company that has built a multibillion-euro backlog on the promise of sustained artillery demand, the question is no longer about winning orders — it is about whether the orders that matter are for a world that is moving on.