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Drones, missiles, and warships were, for a long time, deemed uninvestable in Silicon Valley\u2014or, at minimum, contentious.\u00a0<\/p>\n
Consider 2018: Googlers were storming out over their company\u2019s involvement in the AI military initiative Project Maven, and Anduril was the anomaly, a multi-million defense-focused startup soon to be headlined as \u201cthe most controversial startup\u201d in tech. VCs touched defense rarely, if at all.<\/p>\n
Today, they can\u2019t get enough. Anduril, now valued at $61 billion, is joined by a growing class of \u201cneo-primes,\u201d from autonomous shipbuilder Saronic, last valued at $9.25 billion, to drone maker Shield AI, at $12.7 billion. Defense has exploded into a consensus growth area among VCs, seen as ripe for AI-fueled innovation. The numbers bear it out: in the first quarter of 2026, VCs deployed a record $19.8 billion into defense tech across 262 deals, according to PitchBook. (For comparison: That number in Q1 2024 was $5.7 billion, and in Q1 2025 was about $17 billion.)<\/p>\n
The vibe shift is sending valuations into the stratosphere.\u00a0 Early-stage defense startups are raising millions and fetching multiples from 17 times to 50 times revenue (sometimes even higher).\u00a0<\/p>\n
With the market running so hot, the inevitable question that emerges: Are we in a bubble? At Fortune<\/em>\u2019s Brainstorm Tech conference in June, Anduril CEO Brian Schimpf answered with a nuanced but decisive \u201cYes.\u201d\u00a0<\/p>\n \u201cWhen there are successful companies, you have lots of other companies and investors chasing that, and [there can be] very risky behavior,\u201d Schimpf said onstage. \u201cWe\u2019ve been very careful at every stage to manage this, but it\u2019s easy to chase those valuations if you\u2019re not being careful. So, I do think there\u2019s a bit of a bubble. Capital\u2019s cheap, and it\u2019s great if you can get capital as an advantage\u2014go for it. But do understand the consequences for your company when you do: You put expectations through the roof of what you can deliver on.\u201d<\/p>\n Given how far ahead valuations have gotten from the fundamentals of many startups, it\u2019s tough to argue that there\u2019s not a bubble in at least some corners of the defense tech market. But that\u2019s not to say these aren\u2019t real businesses or that the market is on the verge of imploding.\u00a0\u00a0\u00a0<\/p>\n \u201cIs there a bubble in defense tech? It\u2019s always a hard question,\u201d said Peter Wilczynski, Vantor\u2019s chief product officer. \u201cIt\u2019s obvious to say yes. But the people who say yes then are always wrong, so it\u2019s complicated.\u201d<\/p>\n I think the more interesting series of questions goes something like this: What parts of defense tech funding, as it exists today, are fragile, and what is likely to prove resilient? Are traditional Silicon Valley investors actually equipped, in mindset and business models, to underwrite and ride out the gulf between defense (and D.C.) economics versus the economics of consumer apps or enterprise software? And, if there is a bubble, is that actually<\/em> bad?\u00a0<\/p>\n No matter what, there\u2019s certainly friction ahead.\u00a0<\/p>\n \u201cWe\u2019re probably close to the adolescent period, for sure,\u201d said Wilczynski, who previously spent 12 years at Palantir. \u201cThere are going to be teenage years in defense tech, and it\u2019s going to be awkward.\u201d<\/p>\n For decades, investing in defense companies and weapons makers wasn\u2019t just d\u00e9class\u00e9: there was limited evidence it could work. A defense company lives or dies by so-called programs of record\u2014a notoriously difficult to attain Pentagon budget line item, bureaucratic but business-making or breaking\u2014and was up against the defense \u201cprimes\u201d like Northrop Grumman or Lockheed Martin, known for their billions in contracts and market cap, their history, and entrenchment within Congress.\u00a0<\/p>\n But over the last 20 years, the perception among investors has radically shifted: The marked success of Palantir\u2014eventually followed by Anduril\u2014made clear that serious venture-backed winners could emerge by going all-in on defense.\u00a0<\/p>\n \u201cTen or fifteen years ago, it was really hard to get confidence that these companies would be able to get there,\u201d said Aaron Jacobson, a partner at VC firm NEA. \u201cBut because you\u2019ve now had success in Palantir and Anduril and others, plus the government\u2019s progress, it\u2019s starting to really encourage folks to believe it\u2019s actually going to be possible to have more innovation in the space.\u201d\u00a0<\/p>\n For companies that are able to get traction, the economics are alluring: large total addressable markets, the Pentagon as a long-term customer after committing to a purchase, and businesses that are seemingly recession-proof. That said, it also gets tough fast, Janelle Teng Wade, Bessemer partner, pointed out via email: Sales cycles are \u201clong and lumpy\u201d and \u201chard to forecast,\u201d while you\u2019re also stuck with \u201cfunding cycles impacted by political factors, and opaque contracting processes.\u201d<\/p>\n The timelines are just different, and finding analogous industries to benchmark defense companies against is not easy.\u00a0\u00a0<\/p>\n \u201cDefense tech runs on entirely different time scales and metrics than traditional software,\u201d said Morgan Hitzig, Overmatch Ventures general partner, via email. In fact, Hitzig explains, defense tech is in many ways the inverse of AI or SaaS economics.\u00a0<\/p>\n \u201cSoftware companies start with low OpEx and then accrue high sales and marketing spend to scale,\u201d Hitzig says. \u201cDefense tech requires significant CapEx upfront, especially for companies building physical hardware. But once deployed and proven, sales efficiency can be extraordinary.\u201d<\/p>\n VCs like to talk about patient capital, but defense tech requires really<\/em> patient capital. The \u201cvalley of death\u201d\u2014the famously lengthy wait between tech that works and the military buying and deploying it at scale\u2014is easily enough to kill a company. Many multi-billion dollar names in defense tech, like Shield, have military contracts, but remain pre-program-of-record, which keeps the future in limbo.<\/p>\n \u201cThe valley of death is also about: How do you go from a cool startup to a full-fledged neo-prime that\u2019s able to return cash to investors?\u201d said Vantor\u2019s Wilczynski. \u201cI think the big question in defense tech is: Who\u2019s going to fund it across that valley?\u201d<\/p>\n The answer, for now, seems to be VCs.\u00a0<\/p>\n Defense tech\u2019s rise has been underpinned by surging geopolitical strife, from the war in Ukraine to the war in Iran. The question is whether there are too many companies raising at unsustainable valuations, and if venture capital is the right tool for tech that\u2019s inextricably tied to national security.<\/p>\n \u201cThe challenge is that there\u2019s too much supply in venture capital,\u201d said Trae Stephens, Anduril cofounder and Founders Fund partner, who argues that the glut of capital can create a funding cycle that distorts the market. \u201cAll of these funds are competing with one another to win deals, and the best lever they have to win deals is price. They keep chasing, chasing, and chasing.\u201d<\/p>\n The problem with that dynamic in defense tech, Stephens said, is that \u201cthis isn\u2019t consumer AI. The growth curve isn\u2019t zero to $30 billion in 18 months. It\u2019s a really, really hard game.\u201d<\/p>\n The long timelines make the high out-of-the-gate valuations tricky over time.\u00a0<\/p>\n \u201cYou could find yourself in the situation where you\u2019re burning millions of dollars per month and you still don\u2019t have any production contracts,\u201d said Stephens. \u201cThere\u2019s enough hype right now that investors don\u2019t really seem to care about that. But at some point, that music\u2019s going to stop and there are going to be real business expectations. The question is: In that game of musical chairs, when the music stops playing, who\u2019s going to be in a good enough position in relation to their valuation that they can avoid a down round?\u201d\u00a0<\/p>\n Which sub-areas in defense tech seem overcrowded right now? Ali Javaheri, senior emerging technology research analyst at PitchBook, says that categories like battlefield AI and drones are looking especially saturated.\u00a0<\/p>\n \u201cThe reason that people might kind of be fixated on this question\u2014whether it\u2019s a bubble or not\u2014is because they\u2019re still conceiving of the old\u00a0 model of buying defense tech,\u201d said Javaheri, referencing the longstanding criticism that the Pentagon is a bureaucratic and snail-paced buyer of tech, and Secretary of War Pete Hegseth\u2019s current efforts to streamline the procurement process. \u201cThis new model\u2026 it hasn\u2019t shaken out yet. I think it\u2019s still way too early to say whether it\u2019s a bubble or not.\u201d\u00a0<\/p>\n So, asked in good faith: Is there a bubble? Yes, probably, maybe, or eventually. But what\u2019s more important is this: There will be ways in which a bubble isn\u2019t a bad thing for defense\u2014the hype-based capital fueling innovation right now could<\/em> productively shape national security and financing norms for decades to come. The flip side\u2014and a potential cause for concern\u2014is that this is bigger than startup valuations. A period of deep disillusionment on the other side of a bubble burst could potentially affect the health of the U.S. defense innovation base.<\/p>\n For now, there\u2019s lots of room to run in defense tech, for founders and investors. But, in the end, there will only be so many major winners. For investors, Stephens cautions: Picking the right horse is ultimately more important than timing the bubble.\u00a0<\/p>\n \u201cIf you\u2019re a space tech investor and you didn\u2019t invest in SpaceX, you probably lost money,\u201d he told Fortune<\/em>. \u201cIf you\u2019re a crypto infrastructure investor and you didn\u2019t invest in Coinbase, you probably lost money. If you\u2019re a social media investor and you didn\u2019t invest in Facebook, you probably lost money. We have this crazy tendency to believe that the emergence of a sector will lead to dozens of winners\u2014and there\u2019s just no evidence that\u2019s actually how any of this works.\u201d\u00a0<\/p>\n<\/div>\n #defense #tech #boom #bubbleor<\/p>\n","protected":false},"excerpt":{"rendered":" Drones, missiles, and warships were, for a long time, deemed uninvestable in Silicon Valley\u2014or, at minimum, contentious.\u00a0 Consider 2018: Googlers were storming out over their company\u2019s involvement in the AI… <\/p>\n","protected":false},"author":1,"featured_media":10192,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[3296,301,12047,3059,4414,6490,602,568],"class_list":["post-10191","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-finance-news","tag-anduril","tag-boom","tag-bubbleor","tag-defense","tag-drones","tag-palantir-technologies","tag-tech","tag-venture-capital"],"_links":{"self":[{"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=\/wp\/v2\/posts\/10191","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=10191"}],"version-history":[{"count":0,"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=\/wp\/v2\/posts\/10191\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=\/wp\/v2\/media\/10192"}],"wp:attachment":[{"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=10191"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=10191"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=10191"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}The unforgiving economics of defense<\/strong><\/h2>\n
\u201cToo much supply\u201d<\/strong><\/h2>\n