UK investors tip defence to outpace AI as top growth sector for rest of 2025

• 55% of IG UK clients included defense in their top three growth sectors vs 45% for AI
• First time defense has topped rankings, following NATO’s commitment to up military spend
• Semiconductors hold firm in third place

UK retail investors believe that defense will outperform all other sectors over the next six months, according to the latest biannual sentiment tracker from investing and trading platform IG.

It’s the first time since the survey began that defense has taken the top spot – driven by multiple catalysts that have lifted sector performance this year – while AI has slipped into second place.

IG asked 1,800 UK investors to name the three sectors they believe will deliver the strongest growth over the next six months. defense and military led with 55%, ahead of AI-related industries (45%) and semiconductor equipment (29%).

Six months ago, AI narrowly pipped defense to the top spot (40% vs 37%) but since then a combination of heightened geopolitical instability and commitments from NATO members to increase military spending has seen a spike in capital inflows into the defense industry. NATO’s June summit in The Hague saw members commit to raise spending to 5% of GDP by 2035.

IG Client Sentiment Tracker shows the three sectors retail investors expect to see the most growth in the next six months

defense stocks across the world have soared in value in 2025. In the UK, BAE Systems (59%), Rolls Royce (68%) and Babcock (106%) have all seen significant returns year-to-date while in Europe, following Germany’s landmark reform to its debt brake in March to allow for higher defense spending, industrial tech heavyweight Rheinmetall AG’s share price has jumped by 192%. French multinational aerospace and defense corporation Thales Group is up 74% on the year.

IG’s latest survey also shows that sentiment towards the FTSE 100 is now at its strongest ever level, with 73% of IG clients saying they expect the index to make positive returns over the coming six months, up from 69% in December 2024.

Chris Beauchamp, Chief Market Analyst at IG: “While AI sentiment remains bullish, the drivers behind the defense sector are stronger than ever – and investors are clearly responding to that momentum.

“The rise of the AI industry over recent years has been extraordinary, but in 2025, cracks have started to show. April’s US tariffs exposed the sector’s fragile reliance on international supply chains, while intensifying competition from China is adding pressure.

“In contrast, defense appears to offer more certainty. Government spending commitments are increasing, and the broader geopolitical backdrop shows no sign of easing. For many investors, defense now looks like a more resilient growth story, especially as concerns about stretched tech valuations continue to grow.”

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