The $40B Defense Tech Wave: From Anduril to the Public Markets

Venture funding into defense-focused startups has roughly tripled since Russia's invasion of Ukraine, as the war provided a very public, very concrete demonstration of what autonomous systems, drones, and software-defined warfare actually look like in practice. Capital that spent a decade avoiding defense as a category — for reputational as much as financial reasons — has largely reversed course.

The pipeline this has built is unusually deep for the sector: Anduril has become the reference name for vertically integrated autonomous systems and is widely discussed as the most likely near-term defense-tech IPO candidate, alongside earlier-stage but well-funded peers like Shield AI in autonomy and Joby in defense-adjacent advanced air mobility. None have gone public yet, which means the public market's only current exposure to this theme runs through incumbents and adjacent names.

That is showing up in how existing public defense-technology names trade. Palantir's AI platform business, Kratos's drone and hypersonics work, and Mercury Systems's embedded processing have all been repriced partly in sympathy with the private market's enthusiasm for the category, even where the public companies' own government contract mix hasn't changed much. Public investors are, in effect, underwriting the private thesis through the closest available proxies.

The valuation question for the eventual IPOs is real: private defense-tech rounds have been priced at multiples that assume procurement reform actually accelerates, and the Pentagon's adoption cycle for new vendors remains one of the slowest in any large market. We think the underlying thesis — software and autonomy displacing traditional prime-contractor hardware cycles — is directionally right; we'd want to see actual production contracts, not just pilot programs, before underwriting the valuations private markets have already assigned.