For two years, defense was a demand story. It was about budgets, about order books, about NATO’s 5 percent pledge, about every new framework contract. If you invested, you were buying the conviction that Europe and the United States would spend more on defense over a decade than they had in the three decades before. This weekend that story acquires a second half almost nobody has been discussing: the supply side. Israel is pushing ahead with public listings for its two state-owned defense giants — Israel Aerospace Industries and Rafael Advanced Defense Systems, together carrying a targeted valuation of roughly 50 to 57 billion dollars. And not in Tel Aviv, but if possible on Nasdaq.
What is actually on the table
The decisive line in the reporting of the past days is that Israel’s Defense Ministry has dropped its long-standing objection and given consent in principle to taking both companies public. That is the real news. Privatization of Israel Aerospace Industries was approved roughly six years ago and then stalled at precisely this point: the question of what a defense contractor must disclose publicly when its products form part of the national security architecture of a country in permanent conflict. If that resistance is now gone, something structural has shifted.
In concrete terms, a delegation led by Maayan Harel, deputy head of Israel’s Government Companies Authority, traveled to New York in July together with representatives of both companies and the Defense Ministry. They met regulators, law firms and underwriters. The output is meant to be a position paper on a dual listing across Nasdaq and the Tel Aviv Stock Exchange. The plan envisions selling up to 30 percent of the state’s holdings; at Rafael there is an additional proposal for as much as 49 percent through a private placement, which would move faster than a conventional IPO. That would require softening the security establishment’s previous conditions, which limited any offering to Israel, to primarily institutional buyers, and to no more than 30 percent.
The valuations under discussion: 80 to 100 billion shekels for Israel Aerospace Industries, roughly 27 to 34 billion dollars, and 60 to 70 billion shekels for Rafael, roughly 20 to 24 billion. A 30 percent placement would mean some 15 to 17 billion dollars of new paper. Rafael has assembled a strikingly political advisory bench for the job: Yankee Quint, former head of the Israel Land Authority, Brig. Gen. (res.) Ram Aminach, formerly financial adviser to the IDF chief of staff, and Shmuel Hauser, former chairman of the Israel Securities Authority. When your problem is regulatory, you hire the former chief regulator.
A deadline that has nothing to do with valuation
The timetable is the least comfortable part of this story, and investors should file it away. The stated goal is to conclude by year-end. Rafael needs sign-off from the ministerial committee on privatization and the consent of the Defense Ministry before the Knesset dissolves ahead of elections due by late October. So there is a hard window — and that window is defined politically, not by valuation, market conditions or investor appetite.
For buyers that is an unfavorable setup. A seller who has to place stock for calendar reasons is a motivated seller. In a hot market that does not matter, because demand absorbs any schedule. In a market that has started to doubt, it is exactly what sets the price. Equally important is the caveat that appears in every account: no final decision has been taken on size, timing or venue, and the plans may still change. Six years of history argue for caution about assuming it happens this time.
What is being sold
Israel Aerospace Industries delivered the best year in its history in 2025, and those numbers are the reason the timing is what it is. Revenue rose 21 percent to 7.38 billion dollars from 6.11 billion. Net income climbed 45 percent to 712 million dollars, EBITDA 37 percent to 1.08 billion. That profit grew far faster than revenue is the genuinely interesting detail: this is margin expansion, not merely volume.
The order backlog passed 28 billion dollars for the first time, at 28.75 billion — more than five billion above the end of 2024 and equivalent to roughly 3.9 years of revenue. International customers account for 71 percent of it. Defense revenue rose 23 percent to 6.4 billion dollars, and exports of 4.88 billion made up two-thirds of the total. The main driver: the Arrow 3 missile defense system.
Those company numbers sit inside a national picture. Israeli defense exports hit a record 19.2 billion dollars in 2025, up almost 30 percent and the fifth consecutive record year. Missile, rocket and air defense systems accounted for 29 percent of exports, optronics for 22 percent after just 6 percent the year before. Government-to-government deals came to about 10 billion dollars, more than half the total and itself a record. Anyone buying here is not buying a bet on a recovery. They are buying a business at the peak of its demonstrated earnings power. That is simultaneously an advantage and a warning.
Why Nasdaq rather than Tel Aviv
This is where it gets awkward. The openly stated reason for preferring a US listing is not liquidity, not the valuation multiple, not the investor base. It is the expectation that American regulators are more likely to grant relief from disclosure obligations on national security grounds than Israel’s own securities authority. In other words: you go to the most visible exchange on earth in order to say less there.
Economically that is defensible. No state can allow unit volumes, customer countries and technical detail of a missile defense system to end up in a quarterly filing. For the shareholder an uncomfortable consequence remains: you are buying a backlog you cannot decompose. With a normal industrial company you can ask how much revenue comes from which customer at what margin with what counterparty risk. Here part of the answer is that they are not permitted to say. Valuation is always a function of information, and whoever supplies less of it either accepts the discount or finds buyers willing to ignore it.
The only hard pricing anchor is Elbit Systems, the one Israeli prime already listed. Elbit reported first-quarter 2026 revenue up 15.5 percent to 2.189 billion dollars, GAAP diluted earnings per share of 3.34 dollars — a 42 percent increase — and a record backlog of 30.2 billion dollars as of the end of March, more than seven billion higher year over year. Its market capitalization is around 36.7 billion dollars. So a company with a comparable order book currently trades at just under 37 billion. That is the number any price talk for Israel Aerospace Industries will be measured against.
The witness for the prosecution is called KNDS
There is no need to speculate about how the market receives new defense paper. The test happened three weeks ago, and it failed. KNDS, the Franco-German maker of the Leopard 2 tank and the Caesar howitzer, formed from the merger of Krauss-Maffei Wegmann and Nexter, intended to float about 20 percent of its shares in Paris and Frankfurt. It would have been one of Europe’s largest listings in years. The plan was confirmed on June 24, with valuations of up to 15 billion euros in circulation.
Then came price discovery. Investors would not go above 12 billion euros. The German owner families behind the Wegmann holding set a floor at 12.5 billion. In early July the offering was postponed, officially because of volatility in the defense market. The gap was 500 million euros — about four percent. No deal with genuine oversubscription dies over four percent.
That is the single most useful piece of information this week for anyone holding defense stocks: demand for new defense paper has a price ceiling, and it sits lower than sellers believe. Israel now wants to place a multiple of the KNDS volume into an environment that just failed the same test. For contrast, here is what a working buyers’ market looks like: on June 12 SpaceX sold 556.6 million shares at 135 dollars on Nasdaq, raising roughly 75 billion dollars in the largest IPO in history, and closed its first session at 160.95 dollars, 19 percent above the offer price. Appetite for scarcity stories exists. It has simply become extremely selective.
Why the sector is de-rating in the first place
Europe’s bellwether for the theme trades roughly 50 percent below its September 2025 all-time high and about 30 percent under its 200-day moving average. Rheinmetall lost double digits within days in late June after Germany scrapped the F126 frigate program worth up to 12.8 billion euros — a program in which the company had been expected to serve as prime contractor. Early July added another four percent or so of losses after the NATO summit in Ankara.
The reading that has taken hold in recent weeks is the more interesting one: investors are no longer pricing the narrative, they are pricing execution and fundamentals. A ten-year government pledge is not an order, an order is not revenue, revenue is not profit. After a rally in which revenues at Rheinmetall, Leonardo, BAE Systems, Thales, Hensoldt and Saab rose an average of 57 percent between 2021 and 2025 — 323 percent at Rheinmetall, 284 percent at Saab — share prices ran far ahead of the fundamentals. What is correcting now is not the business, it is the multiple.
That this really is a valuation question rather than a business question was on display last Thursday in Paris and Madrid. Thales gained about five percent on half-year results, with revenue up nearly eight percent and order intake up 22 percent. Dassault Aviation rose roughly ten percent on first-half revenue of 4.2 billion euros, a 46 percent increase. Indra added about five percent. The operating books are as full as they have ever been. The market has simply stopped paying any multiple for them.
The American angle
For US investors there are three practical layers. The first is competitive. Lockheed Martin, RTX, Northrop Grumman and General Dynamics have spent two years being the default way to own the rearmament theme, and Patriot and THAAD sit in the same tier of the air and missile defense stack as Arrow. A listed Israeli prime with two-thirds of revenue from exports and a backlog worth nearly four years of sales would be a direct competitor for the same defense dollar in portfolios — and it would arrive with a marketing line the US primes cannot match, namely a combat record accumulated in real interceptions rather than in test ranges. Worth noting for balance: Arrow is co-produced with Boeing, and the program has been co-funded by Washington for decades, so this is less a foreign entrant than an unbundling of something American investors have already been paying for.
The second layer is mechanical. A Nasdaq listing of this size does not stay outside the index universe for long. Index inclusion forces passive funds to buy regardless of view, which is why large listings tend to trade on a technical bid for months after the lockups and the inclusion calendar rather than on fundamentals. The third layer is tax and access. For US taxable accounts the usual split applies — short-term gains at ordinary income rates versus long-term rates after a year — and a foreign issuer means paying attention to withholding on any dividend and to the reporting treatment of a foreign private issuer, which is exactly the status that would carry the lighter disclosure regime discussed above. Investors who prefer diversified exposure can hold the theme through the established aerospace and defense ETFs, where a new listing typically only enters after a seasoning period.
Risks, embargoes and the strongest counterargument
The largest specific risk in these shares is political and quantifiable. In September 2025 Spain became the first NATO member to impose a complete arms embargo on Israel, covering imports, exports and transit, and canceled three procurement contracts with Israeli companies. Slovenia was the first EU state to ban all weapons trade outright, and Belgium extended its embargo to transit. The export statistics show the result: Europe’s share of Israeli defense exports fell from 54 percent in 2024 to 36 percent in 2025, even as the total rose by 30 percent. The record was set despite Europe, not because of it. An investor here is buying a form of political risk that simply does not exist in the same shape at an American or European prime.
Then come the domestic obstacles: the IAI union with roughly 15,000 members and real political weight, an open turf conflict between the Government Companies Authority and the Finance Ministry, and the unresolved core question of how classified technology is handled in a securities prospectus. IAI chief executive Boaz Levy, who also became chairman in May 2026, put it publicly in terms of waiting for the process to be initiated, calling it essential for Israel and for the company and saying he believes it will happen. That is the language of a man who has been waiting for years.
The strongest counterargument to the skeptical reading is scarcity. There are very few listed ways anywhere in the world to invest specifically in air and missile defense — precisely the segment that the past two years have made the least negotiable line item in any defense budget. A 3.9-year backlog, expanding margins and combat-proven systems are not a weak offer, they are a good one. If the placement comes at a discount to Elbit, long-term investors could end up with a workable entry. The question is not whether the business is good. The question is the price.
What to watch now
This story lands in a week when attention is entirely elsewhere: the Fed decides on Wednesday, Microsoft and Meta report that same evening, Apple and Amazon on Thursday, second-quarter GDP arrives Thursday and the PCE deflator on Friday. The preceding Friday ended split — the Dow up 0.46 percent at 51,947.25, the S&P 500 essentially flat at 7,411.98, the Nasdaq Composite down 0.64 percent at 24,975.82 — marking a third straight losing week for the Dow, with the ten-year Treasury yield at 4.69 percent, its highest since January 2025. Defense will be drowned out in that mix. Which is exactly why it is worth looking at now.
Three concrete markers for the coming weeks. First: does Rafael secure government approval before the Knesset dissolves? If it does not happen by late October, the subject disappears for months. Second: at what valuation does any placement come, measured against Elbit’s roughly 36.7 billion dollars on a 30.2 billion dollar backlog? A visible discount would be a more honest signal about the state of the sector than any analyst estimate. Third: does KNDS return? A successful second attempt in Paris and Frankfurt would show that the problem in July was the price and not the theme.
The broader thought is the one that matters most. When an owner who knows more about the value of an asset than any outsider decides, in the best year in that asset’s history, to hand over a third of it, that is not proof of a peak — but it is information. Cycles rarely end with bad news. They end with the people who have been there longest selling shares to the public.
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