The future of America’s military industrial complex
In an age of disruption, defence is undergoing seismic and lucrative change
Rana Foroohar
© Matt KenyonThe defence industry, long considered a value trade, has in the past few years become a growth play.
Global conflict is on the rise, and technology — from AI and cheap drones to sensors, robotics and unmanned systems — is fundamentally changing the nature of war.
And that’s leading to an investment boom.
But will it lead to better national security outcomes?
The answer depends on whether military forces can leverage the three Ds of modern defence — disruption, dual use and decentralisation.
Investment in US defence and aerospace ETFs hit a monthly record in March (they were up 573 per cent year on year as of the third quarter of 2025).
In absolute dollar terms, most of that money is still going to old-line defence industry “primes,” such as Lockheed Martin, General Dynamics, RTX, Northrop Grumman and a handful of other large aerospace companies that have controlled the defence industrial base for decades.
But the incremental growth, along with most of the excitement, is around the next generation of defence technology firms, such as Anduril Industries, a privately owned firm which recently doubled its valuation.
Their rise is predicated on the idea that warfare is, like the world itself, becoming more digital and decentralised.
Conflict is asymmetric — smaller nations like Ukraine or Iran can now hold their own against incumbent powers by leveraging cheap technology.
Meanwhile, the need for greater speed, resilience and redundancy in supply chains is moving the production of everything from drones to the placement of AI data centres closer to home.
The decoupling of the American and Chinese tech stacks has created opportunities for start-ups in both countries, as the old, highly globalised and concentrated model of defence shifts.
But the security pay-offs of 21st-century defence systems depend on a country’s ability to integrate new technologies and new ways of doing things into existing institutions and procurement models.
While US companies are ploughing ahead on defence tech innovation, the government itself is still struggling to adapt.
The American military-industrial complex isn’t geared for the 21st century, as evidenced by munitions shortages, budget overruns, maritime chokepoints that can’t be controlled and adversaries who can’t be beaten using the most expensive hardware alone.
The US model has traditionally been highly concentrated and centralised: large companies making big equipment designed for single-purpose use cases.
But there’s growing evidence that the Department of Defense is trying to adjust.
A case in point is the US Navy shipbuilding plan introduced last week, which is far more focused than previously on speed, flexibility and technology that can be deployed in multiple ways.
“High-end platforms remain essential, but they must be complemented by systems that can be produced at volume and adapted in real time,” the plan says, with production spread “across multiple yards and suppliers”.
So far, these are just words, but in the slow-moving world of the US military even a narrative shift matters.
So does the focus, particularly under the Trump administration, on bringing commercial impulses to the military.
As the Office of Management and Budget’s shipbuilding tsar, Jerry Hendrix, told me a few weeks ago, the new strategy aims to connect commercial and military production and to work with allies to build in multiple yards.
He cites the “Finnish model,” in which the US is building Arctic icebreakers domestically as well as in Finland, as a template for how the $65.8bn in new shipbuilding financing requested by the president might be spent.
Building in a decentralised way and cutting through traditional procurement red tape to work with allies, creating multiple nodes of production, is a good idea.
But in a world of drone warfare, almost anything visible is a target.
That calls for new ways of thinking about everything from munitions to ships to food systems, all of which can be targeted in much more precise ways than in the past.
On that score, I was interested to read about a $9mn US Army contract given to Biosphere, a company developing a “portable biomanufacturing system” capable of producing protein-based food rations for troops using just air, water and electrical energy.
The idea is to create a highly distributed model of food production in which rations could be made anywhere at the drop of a hat.
In 2021, I wrote about University of Wisconsin biologist Molly Jahn, who has worked on similar “making food out of thin air” technology at Darpa, the innovation arm of the Pentagon.
At the time, it was fiction; today, the technology is commercially viable.
I spoke recently to Jahn, who believes that not only food, but all sorts of military supplies, could eventually be created at a hyperlocal level using cutting-edge technologies.
She refers to Thomas Kuhn’s book The Structure of Scientific Revolutions as a touchstone for thinking about the technological and geopolitical shifts we are living through.
“We’re exiting the period of ‘ordinary’ and moving into a period of ‘extraordinary’” that will lead to a revolution not just in defence, but across most industries, she says.
Such periods tend to be incredibly disruptive.
And profitable.
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