Hensoldt’s AI Alliance with IBM Spotlights Digital Defence Shift as Record Orders Pile Up

Hensoldt partners with IBM on AI and automation for defence software; record €10B order backlog yet stock lags 35% below highs. Q2 results will test margin leverage.

Hensoldt is betting big on software-defined warfare, and a freshly signed partnership with IBM marks the latest step in that transformation. The defence electronics group inked a memorandum of understanding with IBM Deutschland on 12 May at the AFCEA trade fair in Bonn, joining forces on artificial intelligence and automation for military applications. The centrepiece is Hensoldt’s MDOcore software suite, which fuses real-time data from sensors and weapons systems, with IBM contributing its watsonx platform and automation know-how. The goal, the company says, is to slash development timelines for new capabilities and lower the technical risk on complex defence programmes while retaining full sovereignty over system architecture and data integration — a critical selling point for procurement authorities wary of foreign dependence.

The strategic move comes against the backdrop of an operational surge that has yet to translate into lasting share price gains. Hensoldt reported first-quarter revenue of €496 million, up nearly 26% year-on-year, while the loss per share narrowed to €0.16. More striking was the order intake: €1.48 billion, more than double the prior-year period, pushing the backlog to roughly €10 billion — a fresh record. To handle the workload and push the digital agenda, the group plans to hire around 1,600 people in 2026, with an emphasis on software engineers, AI specialists and cybersecurity experts. Much of that talent is being poached from the struggling automotive sector.

On the bourse, the stock has struggled to reflect the momentum. Shares closed at €75.58 recently, a modest recovery from the December trough but still roughly 35% beneath the 52-week high of €115.10. The Relative Strength Index has surged above 82, signalling extreme overbought conditions in the short term, while the price trades about 10% below its 200-day moving average. The discount to analyst targets is pronounced: Morningstar reiterated a fair value of €110 on 13 May, Deutsche Bank holds a €101 price objective, and even the more cautious JPMorgan sees upside with an €85 target, though it warns about thin margin headroom.

A near-term catalyst arrives on 22 May, when Hensoldt holds its virtual annual general meeting. The board has proposed a dividend hike to €0.55 per share for the past financial year. If shareholders approve, the ex-dividend date is expected three days later. Management is also due to elaborate on the software strategy and the status of the bi-national luWES project during the meeting.

Looking ahead, the market’s focus will shift to the second-quarter figures on 31 July. The real test for Hensoldt’s revaluation lies in whether the IBM alliance and MDOcore can generate genuine margin leverage — or remain architectural blueprints. For now, the record order book and the digital pivot provide a compelling narrative, but it is the cash conversion and profit delivery that will decide how quickly the valuation gap narrows.