Tankmaker KNDS has postponed its highly anticipated public listing until market conditions improve, following a slump in European defense stocks in recent months.

Shareholders of the Amsterdam-based company have decided that the IPO process will resume "upon the return of more favorable market conditions," KNDS said in a statement late Wednesday, citing "current market volatility for the European Defense sector."

It comes after the defense equipment maker was struggling to convince investors to back a valuation of more than 12 billion euros ($13.7 billion), sources familiar with the matter told CNBC. Media reports have previously suggested that the valuation could reach as much as 25 billion euros, but those expectations have since come down.

KNDS confirmed last week its intention to dual list in Paris and Frankfurt, in what would be one of Europe's largest IPOs this year, without specifying a price or timing. It had been widely anticipated to proceed with a 20% flotation this summer, after the German and French governments came to an agreement earlier this month on joint ownership of the maker of Leopard ​2 tanks and Caesar howitzers.

KNDS declined to comment further on the reasoning for delaying the IPO.

In January, Czech-based defense firm Czechoslovak Group, or CSG, soared 33% from its IPO price on its first day of trading, only to later wipe out those gains. Its value has plummeted by around 60% since then.

German munition maker Rheinmetall has seen its stock plummet 32% year-to-date, while smaller peers Hensoldt and Renk are also in the red over the year. Larger defense firms from around Europe, such as BAE Systems, Leonardo and Thales, have fared better, but still mostly underperformed the Stoxx 600 index, following massive gains since 2021.

The KNDS delay also comes at a time when investors are questioning whether Europe's defense spending boom can live up to expectations.

While governments have pledged hundreds of billions of euros toward rearmament and military modernization, defense stocks have retreated sharply from their highs as investors grow skeptical that promised spending will translate into earnings growth quickly enough.

- CNBC's Annette Weisbach contributed to this report