Building Europe’s Future: From Strategic Resilience to Investment Opportunity

By René Petersen, lead portfolio manager of Nordea’s Empower Europe strategy

As the world becomes increasingly unpredictable, less energy-abundant, and more strategically competitive, Europe has had no choice but to significantly ramp up spending. What is emerging is more than a short-term fiscal response: it is a broad-based investment cycle spanning energy, industrial capacity and defence and cybersecurity.

Until recently, Europe’s long-established economic model was simple to understand. It benefitted from cheap Russian energy, efficient global supply chains, and a relatively benign security environment. This no longer holds today. The pandemic and its aftershocks, Russia’s invasion of Ukraine, renewed trade tensions, and a more fragmented geopolitical order have exposed vulnerabilities.

Europe’s challenges were clearly laid out in the 2024 Draghi report on EU competitiveness, but, thankfully, this is now being addressed through government and private-sector planning. Strategic autonomy is now moving from a broad political concept to a true economic accelerator. From power grids and defence systems to semiconductors, digital infrastructure, and industrial automation, the investment required to strengthen Europe’s resilience is creating new demand across the economy.

The scale is significant. The Draghi report estimates that Europe needs an additional €750–800 billion of investment each year by 2030 to meet its objectives around competitiveness, the energy transition, digitalisation and defence¹.

The key question for investors is whether the current investment cycle can translate into sustained productivity gains and long-term growth, and, if so, which European industries and companies can fully capitalise on the transformation. This distinction matters. The opportunity is not simply to identify the sectors receiving the largest government budgets, but to identify the companies supplying the equipment, software, components and engineering expertise required to deploy that capital.

Reinforcing energy resilience

There are encouraging signs already. As a major element of Europe’s ongoing strategic transformation, energy resilience is driving investment in the infrastructure required for electrification.

Europe has reduced its dependence on Russian pipeline gas substantially, but remains exposed to global energy markets, including LNG (liquid natural gas) prices and geopolitical disruption affecting major supply routes. Recent conflict in the Middle East has again demonstrated how geopolitical tensions can influence energy markets and long-term price formation. This reinforces, rather than removes, the economic rationale for greater domestic generation, grid capacity, storage and energy efficiency.

Rather than investing in upstream exploration (e.g. exploratory drilling) or short-cycle fossil fuels (e.g. shale oil and gas production), broader opportunities can be found in grid infrastructure and transmission. This involves upgrading ageing networks and systems to handle rising electricity demand from renewables, industry, data centres, and transport. In addition, downstream electrification themes – such as energy efficiency in buildings, heat pumps, storage and power management technologies – are appealing.

The numbers illustrate the scale of the challenge. The European Commission estimates that €584 billion of investment in electricity infrastructure is required by 2030, while EU electricity consumption is projected to increase by around 60% between 2023 and 2030². Looking further ahead, the Commission estimates approximately €730 billion of distribution-grid development and €477 billion of transmission-grid development will be needed by 2040³.

Renewables and clean energy generation remain important, but scale requires improved grid capacity and flexibility. As a result, capital is increasingly flowing into regulated networks, equipment suppliers and industrial supply chains that underpin electrification. This creates a potentially attractive investment chain extending well beyond the utilities themselves: transformers, switchgear, cables, power-management systems, grid automation, and specialist engineering.

Addressing security threats

Beyond energy resilience, security is also at the forefront of the European agenda. What were once infrequent threats, both territorial and digital, have become structural challenges that impact policymaking, capital allocation, and long-term strategy.

This has forced governments and institutions to mobilise substantially more investment in military systems, aerospace, critical infrastructure, data protection, and secure communications. Here, the goal is to strengthen Europe’s control over critical defence and cybersecurity capabilities and reduce reliance on external partners.

EU Member States spent €343 billion on defence in 2024, an increase of 19% from 2023. Defence investment exceeded €100 billion for the first time, reaching approximately €106 billion, while equipment procurement rose 39% to €88 billion⁴. For investors, capital is flowing not only to major defence groups but also to the broader ecosystem of companies providing enabling technologies, specialised components, secure systems, and essential services. This is expanding the opportunity set across the European market.

This is particularly relevant because modern defence procurement is increasingly technology-intensive. Radar and sensing systems, drones and counter-drone technology, electronic warfare, secure communications, propulsion, semiconductors, specialist materials and cybersecurity all require extensive networks of suppliers. The investment opportunity therefore extends beyond the prime contractors to the specialist businesses embedded in European defence supply chains.

Small and Mid-cap opportunities

As in defence, Europe’s broader revitalisation will be driven by household-name companies, but by specialised businesses providing the technologies, components, and expertise that turn ambitious plans into reality. This is particularly relevant in European small and mid-cap equities.

The economic importance of these companies is considerable. The EU has around 34 million SMEs, and they represent 99.8% of the business population. In 2025, SME real value added increased by 2.5% and employment by 1.0%. While SMEs are not synonymous with listed small and mid-cap companies, the data illustrates the depth of Europe’s entrepreneurial and industrial base below the largest listed companies⁵.

Companies operating in areas such as sensors, power management, industrial automation, cybersecurity, grid equipment, and specialised engineering can be important enablers of the broader transformation, while often receiving less attention than the largest companies.

For investors, this creates an important distinction. The largest European companies may capture a significant share of headline government spending, but much of the economic value created by the investment cycle can sit further down the supply chain. A specialist manufacturer of grid components, an industrial automation business or a niche defence supplier may have a more direct relationship with the underlying capital expenditure.

The task is to distinguish between companies merely exposed to Europe’s transition and those with the technology, market position and execution capabilities to capture its economic value. Selected European companies, particularly outside the largest index constituents, can also offer exposure to these structural trends at valuations below those of many global growth markets. But valuation alone should not be the investment thesis: the more compelling cases are businesses where structural demand is translating into measurable revenue growth, improving margins, rising returns on capital or expanding addressable markets.

Europe’s investment needs are increasingly concentrated in the foundations of its future economic and strategic security. Securing energy, onshoring industrial capabilities, and strengthening defence and cyber security will require sustained investment well beyond the current political cycle. The scale and persistence of these needs suggest that Europe’s investment cycle could extend well beyond the immediate response to today’s geopolitical challenges.

For investors, the central question is where that investment will ultimately flow. The companies best positioned to benefit may not always be the largest or most obvious beneficiaries, but the specialised businesses supplying the equipment, technology and expertise that allow Europe’s investment ambitions to become reality.