So Kratos Defense stock got absolutely hammered Wednesday — down 9% out of nowhere. And I mean nowhere. There's no company-specific news, no earnings miss, nothing obvious. Which is exactly when you know something else is going on.

Here's what I think happened. Trump's been rattling the cage about Greenland lately, right? Talking about annexing it, buying it, whatever. Problem is, Greenland belongs to Denmark, and Denmark's part of NATO. The Europeans are not thrilled about any of this.

According to reports, EU leaders are now actually discussing what to do about the Greenland situation. And one option on the table? Start spending more on their own defense capabilities or start shifting military hardware purchases away from U.S. suppliers. That's the kind of thing that can spook investors in defense stocks.

Which brings us to Kratos. The company makes military drones — really sophisticated ones — primarily for the U.S. military. But here's the thing: Kratos has apparently become a pretty significant player in European defense circles too. NATO allies and European defense officials have been looking at their stealth drone technology and satellite communication systems. So if Europe suddenly decides to reduce weapons purchases from American companies, Kratos could potentially lose access to that growing market.

That's the theory. But here's where it gets interesting: the actual risk is probably way smaller than the market reaction suggests. According to market data, Kratos pulls in barely 4% of its revenue from European arms sales. Meanwhile, 83% comes from North America. So even if Europe completely shut the door on U.S. defense contractors tomorrow, Kratos would lose a small sliver of its business.

Don't get me wrong — I still think Kratos is trading at a pretty aggressive valuation. But if you were comfortable owning the stock last week, this whole Greenland drama probably shouldn't be enough to make you panic sell. The risk just isn't that material to the overall story.