Is the Defense Tech Market growing now?
In our defense tech market deck, you will find everything you need to understand the market
SUMMARY
Yes, the Defense Tech Market is growing now, and the growth is showing up in military budgets, real procurement, production capacity, company revenue and private financing at the same time.
The biggest change is not simply that governments are spending more on defense. More of that money is moving toward drones, counter-UAS, autonomy, battlefield software, electronic warfare and lower-cost weapons, which gives newer suppliers a much larger addressable market.
Procurement is starting to look less experimental. Companies such as Neros, Saronic, Castelion, Epirus and Anduril are moving from prototypes or small programs into contracts large enough to justify factories, shipyards, inventory and recurring production.
The strongest parts of the market are also the ones built around cost and speed. Militaries increasingly want systems that can be manufactured in volume, updated quickly and lost without destroying the economics of a mission.
Defense software is becoming more credible as a standalone procurement category. The Army's NGC2 program has moved through field testing, competitive prototyping and division-scale exercises toward broader deployment, even though the technology still has rough edges.
Private capital is running ahead of the customer market. Defense-tech funding is at record levels, and a small group of companies has absorbed billions of dollars to finance hardware-heavy expansion that venture investors would have avoided a decade ago.
That creates a strange split: the market-growth case is strong, while the investment case for individual companies can be much weaker. Anduril, Shield AI and Saronic are already valued at revenue multiples that assume years of exceptional execution.
Europe is now a real part of the defense-tech story rather than a secondary market. Spending, defense investment and R&D are all rising quickly, but large European companies still rely heavily on U.S. and other international investors for late-stage growth capital.
The traditional primes are not being displaced. Startups still capture only a small share of total defense procurement, but they can build very large businesses by owning newer categories such as autonomy, command software, cheap drones, counter-drone systems and some missile programs.
The growth also looks more durable than the current wars alone. NATO spending commitments, EU financing, German rearmament, new procurement mechanisms and factory build-outs extend well beyond any single conflict, even if the exact mix of weapons demand changes.
The main risk is no longer whether defense tech has customers. It is whether heavily funded suppliers can turn demand into reliable, repeatable production fast enough to justify valuations that already price in a much larger future market.
This market map, featured in our defense tech market deck, highlights top companies and startups in the defense tech market
What actually counts as the defense tech market today?
Defense tech today is the newer technology layer of military procurement: autonomous systems, drones and counter-drone systems, battlefield AI and software, sensors, electronic warfare, military space, lower-cost missiles, and the manufacturing built around them.
Counting the whole defense industry would blur the question. A new submarine program may increase military spending by tens of billions of dollars without creating much business for venture-backed technology companies. We are interested in the part of defense where newer suppliers can realistically win: companies such as Anduril, Helsing, Shield AI, Saronic, Castelion, Neros and Epirus, alongside more established technology-focused contractors such as Kratos.
That gives us a better test for whether the market is growing. We should see more government money entering these categories, more programs moving from prototypes into production, rising revenue at suppliers, and enough private capital to finance factories and inventory. Right now, all four are moving upward, although the speed varies a lot from one part of defense tech to another.
If you want more recent data on this point, please see our latest defense tech market report.
Why is the defense tech market growing so fast right now?
Defense tech is growing fast right now because militaries are trying to buy cheaper, software-heavy and autonomous systems while private investors are finally willing to finance the factories behind them.
The wars in Ukraine and the Middle East accelerated the change, but military buyers have learned something broader from them. Cheap drones can destroy equipment that costs many times more. Electronic warfare can change the usefulness of a weapon in weeks. Software can alter how sensors, weapons and units work together without waiting for a new aircraft or vehicle program. Those lessons fit neatly with a longer U.S. concern about China: the military needs more systems that can be produced quickly and fielded in large numbers.
Procurement is adapting as well. The U.S. Army recently put its unified Drone Marketplace live, creating one storefront for unmanned air, maritime and ground systems as well as counter-drone products. NATO has also started pushing banks and institutional investors to put more capital into defense, security and resilience. These are practical changes to how technology gets bought and financed, not another round of speeches about innovation.
As this chart shows, and as featured in our defense tech market deck, search interest in defense tech has risen sharply
Are military budgets still growing fast enough to support defense tech?
Defense budgets are still growing strongly enough to give defense tech a much larger customer base than it had a few years ago.
SIPRI puts global military spending at a record $2.887 trillion in 2025, up 2.9% in real terms and marking an eleventh consecutive year of growth. The global headline is slower than the 9.7% jump recorded a year earlier, but that slowdown hides a striking split: U.S. spending fell as military-aid expenditure dropped, while spending outside the United States grew 9.2%.
Europe is where the change is easiest to see. Military spending there rose 14% in real terms to $864 billion. Asia and Oceania increased 8.1% to $681 billion. Germany rose 24%, Poland 23%, and Spain 50%. These increases are far larger than normal peacetime budget adjustments, and they are happening across several of the countries now trying to rebuild drones, air defense, missiles, sensors and military software.
| Spending area | 2025 military spending | Real annual change |
|---|---|---|
| World | $2.887T | +2.9% |
| World excluding the U.S. | — | +9.2% |
| Europe | $864B | +14% |
| Asia and Oceania | $681B | +8.1% |
| Germany | $114B | +24% |
| Poland | $46.8B | +23% |
Are defense tech startups actually winning serious military contracts?
Defense tech startups are currently winning contracts large enough to support production lines, factories and recurring deliveries, although only a small group has reached that stage.
Neros is one of the freshest examples. The company won an Army contract worth up to $500 million to mass-produce low-cost FPV attack drones. The Wall Street Journal reported that Neros was already producing about 1,200 drones a week and wants capacity for one million a year by 2028. For a company founded in 2023, that is an unusually fast jump from startup production to industrial scale.
Castelion shows the same move in missiles. The company says it has booked more than $500 million in U.S. military contracts over roughly 18 months and is now building out production for its Blackbeard hypersonic strike missile. Saronic, founded in 2022, secured a $392 million U.S. Navy production contract for autonomous vessels and has committed hundreds of millions of dollars to shipyard expansion.
Smaller contracts are also progressing from test to follow-on work. Epirus recently received an $11 million Marine Corps contract for HAVOC, a vehicle-mounted high-power microwave counter-drone system, after delivering a $5.5 million prototype system the previous year. Prototype testing led to operational feedback, a larger follow-on award and preparation for production.
This chart, included in our defense tech market deck, shows annual VC investment in defense tech startups
Is defense tech venture funding still booming right now?
Defense tech venture funding is still running at record levels right now, even when we use narrower definitions that exclude much of space, quantum and generic dual-use technology.
PitchBook data analyzed by the Financial Times put defense-tech VC investment at $12.3 billion in the first half of 2026. That was almost twice the amount raised in the same period a year earlier and already above the roughly $9.45 billion that the same narrower PitchBook series recorded for all of 2025.
Broader datasets produce much bigger numbers. One PitchBook-based count that includes defense-adjacent space, quantum, semiconductors, manufacturing and energy reached $35.6 billion for the first half. We should not mix that figure with the narrower $12.3 billion total, but both point in the same direction.
The pace has stayed hot since the first half closed. Helsing raised $1.8 billion at an $18 billion valuation. Neros raised $250 million at $2.5 billion. Castelion's latest financing combines $800 million of equity with a $250 million revolving credit facility and values the missile company at $13 billion. Fresh capital is still arriving at both the giant late-stage companies and newer specialists.
Are a few giant defense tech rounds distorting the funding boom?
Mega-rounds are inflating the defense tech funding total, but the boom is much broader than a one-company fundraising story.
The narrower PitchBook series is useful here. Defense-tech funding went from roughly $150 million across 50 deals in 2016 to $9.45 billion across 290 deals in 2025. Deal count rose about 5.8 times, while invested dollars rose roughly 63 times. The implied capital per deal moved from about $3 million to nearly $33 million. We are seeing more companies, but the much bigger change is how much money investors are prepared to put behind the winners.
Six major financings completed this year illustrate the concentration. Using only the equity portion of Castelion's latest package, Anduril, Shield AI, Saronic, Helsing, Castelion and Neros have raised about $11.1 billion of equity between them. Six private companies raising about $11.1 billion of equity in one year shows how large the late-stage financing pool has become.
Lots of younger teams can now get funded, while a small group absorbs billions to build factories, shipyards, aircraft, missiles and full-stack military systems.
| Company | Latest major equity round | Valuation at that round |
|---|---|---|
| Anduril | $5.0B | $61B |
| Shield AI | $1.5B | $12.7B |
| Saronic | $1.75B | $9.25B |
| Helsing | $1.8B | $18B |
| Castelion | $800M | $13B |
| Neros | $250M | $2.5B |
If you want more recent data on this point, please see our latest defense tech market report.
This chart, included in our defense tech market deck, shows why Anduril is winning in defense tech
Is Europe really becoming a defense tech market now?
Europe has a real defense tech market now, and Germany is currently its main hub.
Dealroom and the NATO Innovation Fund counted a record $8.7 billion of venture investment into European defense, security and resilience startups in 2025, up 55% in one year and nearly four times the level five years earlier. Late-stage investment alone tripled to $4.7 billion. AI touched 44% of the funding, reflecting how heavily Europe's new defense companies lean toward autonomy, software and decision systems.
The geography is getting more interesting too. The UK attracted $2.9 billion in this broader category in 2025 and Germany $2.1 billion, while Munich remained Europe's largest hub. Germany is now planning more than €700 billion of defense spending over the next five years, according to recent Financial Times reporting. That spending pull is strong enough that Kongsberg, ICEYE, Hanwha Aerospace and Electro Optic Systems are expanding their presence in Germany to get closer to procurement and local production.
The spending mix is also getting more favorable for technology suppliers. The European Defence Agency's latest comparable figures projected total EU defense spending rising from €343 billion to €381 billion, about 11%, while defense investment climbed from €106 billion to almost €130 billion, around 23%. Defense R&D was projected to rise from €13 billion to €17 billion, roughly 31%. Money for investment and R&D is growing much faster than the overall budget.
Europe still depends heavily on outside capital when companies become large. PitchBook found that roughly 98% of European aerospace-and-defense VC deal value this year involved external investors. Helsing's latest $1.8 billion round included large U.S. and global financial institutions alongside European backers. The customer base is becoming European much faster than the growth-capital base.
Which defense tech markets are growing fastest right now?
Counter-drone systems, cheap drones, autonomous vehicles, battlefield software and mass-producible missiles currently have the clearest mix of new budgets, contracts and industrial investment.
Counter-UAS is especially hard to dismiss as hype. The Pentagon's FY2026 request raised counter-unmanned-systems funding from $2.247 billion to $3.187 billion, an increase of roughly 42%. A separate Army-led effort recently awarded CACI an IDIQ contract with a $500 million ceiling for domestic counter-drone capabilities. More than 50 companies then gathered with the XVIII Airborne Corps for live counter-UAS integration testing, showing how many technologies are still competing to become part of the eventual stack.
The same budget contains $906 million for the Defense Innovation Unit to scale commercial technology, $500 million for Cyber Command AI, $359 million for attritable autonomous capabilities and $145 million for AI-enabled one-way attack air and naval systems. Those allocations sit inside a $4.893 billion low-cost-weapons package. That is already a multi-billion-dollar procurement push, not a collection of tiny innovation grants.
Cheap offensive drones are moving in parallel. Current Army plans call for moving from tens of thousands of drones toward as many as one million within roughly two years, while the new Drone Marketplace is meant to make procurement easier across air, maritime, ground and counter-drone systems. Missiles are receiving the same treatment: the FY2026 low-cost-weapons package includes $1.103 billion specifically for low-cost cruise missiles.
Autonomy is spreading beyond small aircraft. Saronic has a $392 million Navy production contract and is building capacity for uncrewed vessels up to the 180-foot Marauder. Anduril has a separate framework covering at least 3,000 surface-launched Barracuda-500M systems over three years. Militaries are clearly trying to buy more shots, sensors and unmanned platforms at a cost that allows them to field large numbers.
| Defense tech category | Current evidence of demand |
|---|---|
| Counter-UAS | U.S. request rises from $2.247B to $3.187B, about +42% |
| Low-cost missiles | $1.103B U.S. allocation for low-cost cruise missiles |
| Attritable autonomy | $359M U.S. allocation for attritable autonomous capabilities |
| Commercial technology scaling | $906M allocated through DIU |
| Military AI | $500M for Cyber Command AI plus $145M for AI-enabled one-way attack systems |
If you want more recent data on this point, please see our latest defense tech market report.
This chart, included in our defense tech market deck, shows annual funding in defense tech startups
Is defense software finally turning into a real procurement market?
Defense software is finally moving beyond pilot projects and into operational architectures that armies plan to scale across formations.
The U.S. Army's Next Generation Command and Control program is a useful test because we can follow the progression. Team Anduril received a $99.6 million prototype award in 2025. The Army then spent about ten months testing competing approaches with the 4th and 25th Infantry Divisions, including exercises under cyber and electronic-warfare pressure.
The Army subsequently selected an Anduril-led team, with Palantir and Raft, for the NGC2 common data baseline. More recently, the system was tested during Project Convergence-Capstone 6, an exercise involving nearly 10,000 soldiers and about 100 technologies. Army leaders came out of that work saying NGC2 was ready to scale.
The program is still rough around the edges. A recent GAO review said the Army needs better schedule and cost information, and reporting from the latest field exercise described hardware overheating and some applications proving redundant. That is actually useful evidence. Soldiers are finding these problems at division scale, after months of field use, rather than vendors discovering them in a controlled lab.
Are defense tech companies actually turning the boom into revenue?
Defense tech revenue is now growing quickly at several companies, although the operating results are much less spectacular than the private valuations.
Anduril gives us the largest private-company example. The company said revenue more than doubled to $2.2 billion in 2025. Shield AI expects more than $540 million of revenue this year, according to Fortune, after building its business around autonomous aircraft and Hivemind autonomy software.
Public companies show the trend without relying on private-company projections. Kratos reported $458.8 million of second-quarter revenue, up 30.5% year over year, with 19.1% organic growth. Its defense rocket business grew more than 50% organically, and management raised full-year revenue guidance to $1.75 billion to $1.81 billion. Red Cat is much smaller, but its first-quarter revenue jumped from $1.6 million to $15.5 million as Black Widow drone deliveries ramped.
Those examples cover very different company sizes, which is useful. We now have growth at a multi-billion-dollar private supplier, a mid-sized public defense-tech contractor and a small drone company. The market still contains plenty of pre-revenue startups, but revenue growth is no longer confined to one obvious winner.
This chart, included in our defense tech market deck, compares the main business model options for defense AI contractors
Are defense tech valuations getting too crazy?
Several defense tech valuations are now pricing in years of exceptional growth, and parts of the market look overheated even while customer demand remains strong.
Anduril's closed $61 billion valuation is about 28 times its $2.2 billion of 2025 revenue. The company is reportedly discussing another financing that could value it around $100 billion, although no deal has been completed. At that level, the valuation would be roughly 45 times last year's revenue and would approach the equity value of Lockheed Martin despite Anduril still being far smaller by sales.
Shield AI offers another clean comparison. Its $12.7 billion post-money valuation is more than 23 times the company's projected revenue of just over $540 million for this year. Investors are clearly paying for the possibility that autonomous aircraft and autonomy software become enormous procurement categories, rather than valuing today's cash generation.
Saronic makes the gap even easier to see. The autonomous-ship company generated just over $200 million of revenue in 2025 and then raised at a $9.25 billion valuation, putting its valuation at more than 40 times that year's sales. Saronic has a real Navy production contract and physical shipyard capacity, but investors are already paying for a much larger future business. At that point, the investment case becomes much less certain than the market-growth case.
If you want more recent data on this point, please see our latest defense tech market report.
Are defense tech startups really breaking into a market still dominated by the big primes?
Defense tech startups are breaking into military procurement now, but Lockheed Martin, RTX, Northrop Grumman and the other primes still control overwhelmingly more spending.
A recent Wall Street Journal analysis found that startups still receive less than 1% of the overall U.S. defense budget even after their Pentagon contract earnings roughly tripled. Traditional defense companies received about $372 billion of Pentagon contracts in the comparison, versus roughly $122 billion for the much broader category of nontraditional suppliers. Startups are only a slice of that second figure.
The path from prototype to production also remains brutal. GAO found that the Defense Innovation Unit awarded 450 prototype agreements from fiscal 2016 through 2023 and reported 62 transitions into production awards. Among projects with at least one completed prototype, the reported transition rate was 51%. Those successful transitions carried more than $5.5 billion in combined contract ceilings, so the mechanism can create meaningful business, but plenty of prototypes still stop before scale.
Procurement is getting easier around the edges. The Army's 10-year enterprise agreement with Anduril consolidated more than 120 separate procurement actions into one vehicle with a ceiling of up to $20 billion. A ceiling is permission to order, not guaranteed revenue, but reducing 120 buying paths to one is a substantial change in how a newer supplier can be used.
The likely outcome is a mixed defense industry. New companies can own categories such as autonomy, command software, cheap drones and some new missile programs while legacy primes remain dominant in fighters, submarines, strategic missiles and other enormous programs. Winning a meaningful slice of new procurement would already make defense tech a large market without requiring startups to replace the old primes.
This chart, featured in our defense tech market deck, shows the share of revenue generated by each customer segment in the defense tech market
Would defense tech keep growing if today's wars cooled down?
Defense tech would probably keep growing even if today's wars cooled, because the market now sits inside multi-year spending plans, industrial rebuilding and military modernization programs.
NATO allies have committed to move toward spending 5% of GDP on defense and security by 2035, with at least 3.5% for core defense requirements and up to another 1.5% for areas that include infrastructure, networks, resilience, innovation and the defense industrial base. Whether every country reaches that target on schedule is uncertain, but the agreed destination is far above the old 2% benchmark.
Europe has already built financing around the same direction. The EU's SAFE instrument provides up to €150 billion of loans for common defense procurement, and 18 member states have already received approval for funding under the program. Germany, meanwhile, plans more than €700 billion of defense spending over the next five years.
Wars can change the mix quickly. A ceasefire could reduce demand for some ammunition, one-way attack drones or emergency replenishment. The durability comes from what militaries are building around those weapons: drone procurement systems, autonomous naval programs, new missile factories, air-defense capacity, resilient communications and military AI. Those programs have budgets and procurement mechanisms that extend well beyond the current fighting.
So, is the defense tech market growing now?
Yes, the defense tech market is clearly growing now, and the growth has moved well beyond venture hype into budgets, contracts, production and revenue.
Government demand gives us the base. Global military spending has risen for eleven straight years, with Europe up 14% and Asia and Oceania up 8.1% in the latest SIPRI data. More importantly for this specific market, technology-heavy parts of the budget are growing faster than the topline: EU defense investment and R&D are rising much faster than total spending, while the Pentagon is directing billions toward commercial technology, autonomy, AI, counter-drone systems and lower-cost weapons.
Procurement is becoming tangible. Neros has an Army contract worth up to $500 million, Castelion has booked more than $500 million of U.S. military work, newer counter-drone systems are moving through follow-on awards, and Army software has progressed from prototypes to division-scale testing. Revenue is following at companies as different as Anduril, Kratos and Red Cat.
Private capital is running even faster. The narrower PitchBook series grew from $150 million in 2016 to $9.45 billion in 2025, and the first half of this year already exceeded that full-year total. Valuations are the least comfortable part of the story: investors are paying technology-style multiples for companies that still depend on slow government procurement and difficult hardware production.
So we are comfortable saying the market is growing fast while being much pickier about the companies. Defense tech is growing quickly today. Counter-UAS, low-cost drones and missiles, autonomous systems, battlefield software and the manufacturing needed to produce them at scale look especially strong. Demand is easy to prove now. The harder question is which of today's heavily funded companies can turn that demand into reliable production before their valuations outrun their businesses.
If you want more recent data on this point, please see our latest defense tech market report.
This chart, included in our defense tech market deck, shows how tactical networking platform technology has evolved over time
OUR METHODOLOGY
This analysis tests whether the defense tech market is growing now by separating the sector into government demand, procurement, private funding, production, company revenue, technology adoption and valuations. We do not treat a higher military budget, a large funding round or one successful contractor as enough evidence on its own.
We define defense tech as the newer technology layer of military procurement: autonomous systems, drones and counter-drone systems, battlefield AI and software, sensors, electronic warfare, military space, lower-cost missiles and the manufacturing built around them. Large traditional weapons programs are included only when they directly help answer what is happening in these newer categories.
We gave more weight to observable execution than to announced ambition. Awarded contracts, follow-on procurement, field testing, production commitments, reported revenue and concrete budget lines carry more weight here than broad strategy documents or general statements about modernization.
Market growth and company quality are treated separately. Strong demand for autonomy, counter-UAS, military software or low-cost weapons can support a growing market even when individual private-company valuations already assume years of exceptional growth.
Funding figures are kept within their original definitions. The narrower PitchBook defense-tech series is not combined with broader counts that also include defense-adjacent space, quantum, semiconductors, manufacturing or energy, because doing so would overstate comparability.
For Europe, we look at both the size of overall defense spending and the mix underneath it. Faster growth in defense investment and R&D is particularly relevant because those categories are more directly tied to new technologies and industrial capacity than the topline budget alone.
Key sources used for this analysis include SIPRI's Trends in World Military Expenditure, 2025, the U.S. Department of Defense FY2026 Defense Budget Overview, the U.S. Army's Drone Marketplace announcement, the European Defence Agency's Defence Data 2024–2025, the European Commission on SAFE, NATO on the 5% spending commitment, and the U.S. GAO review of the Defense Innovation Unit.
We also used first-party contract and financial disclosures where they added checkable company-level evidence, including Army updates on NGC2 and the Anduril enterprise contract, the NATO Innovation Fund and Dealroom on European defense funding, Epirus on HAVOC, Anduril on Barracuda-500M, Castelion on its production framework and financing, Kratos and Red Cat financial results, and financing announcements from Shield AI and Helsing.
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