Shooting to prominence
Anduril, Palantir and SpaceX are changing how America wages war
The Trump administration is cosying up to a new clique of “neo-primes”
THE IRAN war may end up teaching America many lessons.
One that it has learned the hard way is the woeful economics of using conventional weaponry against cheap Iranian drones.
“The dynamics of the world have changed,” says Emil Michael, a former Silicon Valley executive who is now a senior official at the Pentagon.
“You don’t want to spend a $1m missile to take out a $50,000 drone.”
That is one reason why the Pentagon is turning to a new clique of defence upstarts that are reimagining how to wage war.
They are led by Palantir, a software giant providing intelligence systems; SpaceX, whose Starshield satellite network provides reconnaissance and communications; and Anduril, which makes air and sea drones alongside anti-drone weaponry.
This trio of so-called “neo-primes” has close ties with gung-ho figures in the administration of Donald Trump.
They are making the “primes”—the established giants of America’s military-industrial complex—increasingly nervous.
Big Pentagon contractors have, in their critics’ telling, grown stodgy, overpriced and risk-averse as a result of their lucrative sinecures.
“If the [newcomers] are good and they get their sea legs, they’re going to win some of that business that otherwise would have gone through a traditional prime,” Mr Michael says.
Faster, smarter, deadlier
This year the challengers have won some big endorsements.
In January Pete Hegseth, America’s secretary of war, used SpaceX’s base in Texas as the backdrop to release a new artificial-intelligence strategy, promising that the Department of War (DoW) would draw inspiration from Elon Musk’s management approach and “accelerate like hell”.
In March it said Palantir’s AI-infused command-and-control system, called Maven, would become a “programme of record”, locking in funding for years ahead (albeit with a good deal of red tape).
In the same month America’s army streamlined multiple contracts with Anduril into a single one worth up to $20bn over ten years.
Such commitments may look puny compared with, say, the F-35 stealth-jet programme, led by Lockheed Martin.
The F-35 may end up costing the government more than $2trn over several decades.
Last year America’s three biggest primes—Lockheed Martin, RTX and Northrop Grumman—between them generated around eight times the combined sales of the three newcomers (and SpaceX and Palantir make much of their money from customers other than the Pentagon).
Even so, investors are bullish.
The upstart trio are worth more than three times the three biggest legacy contractors, a sign of widespread optimism about their ability to shake up the arms industry (see chart 1).
In the coming months SpaceX is expected to list its shares in the largest initial public offering of all time.
Anduril, which makes nearly all its income from defence contracts, is said to be raising money at a valuation of $60bn, despite generating only $2bn of revenue last year and making a loss.
This price tag in part reflects the record amounts of venture capital pouring into defence startups in America (see chart 2).
Big cheques have also been written in recent months for a second-tier of startups hoping for a shot at the big leagues, including Shield AI, which develops autonomous pilots for air combat, and Saronic, which makes maritime drones.
The buzz is helped by Mr Trump’s quest to persuade Congress to boost next year’s defence budget by more than 40%, to $1.5trn or almost 5% of GDP.
That includes increased outlays on, among other things, drones, counter-drones and AI.
Although the legacy primes will still receive the vast bulk of spending on procurement, Mr Michael hopes that the 1-2% allotted to innovative challengers will rise by “percentage points” annually over the coming years in order to generate more competition.
Cheaper, nimbler, timelier
From the point of view of the Pentagon, one of the biggest selling-points of the newcomers is that, unlike the legacy primes, they mostly shun “cost-plus” contracts, through which the government reimburses all expenses and adds a profit margin on top.
That model may be suitable for big, complex programmes for which it is difficult to estimate the cost upfront, but it is a recipe for sloth.
Instead, the challengers often prefer fixed-price deals in which they cover the initial cost of research and development and earn fat margins if they deliver on time and within budget.
The contract structure helps to keep them lean, and gives them an incentive to upgrade their products frequently, rather than building new weapons or systems from scratch each time.
Anduril, for instance, wants to use a common rocket motor in an assortment of munitions to keep costs down.
As for speed, eight months after SpektreWorks, an Arizona startup, unveiled the prototype of a suicide-drone called LUCAS, American forces deployed it in Iran.
(The LUCAS is, ironically, a reverse-engineered copy of Iran’s Shahed drones.)
Excitement about the Pentagon’s shifting approach is palpable.
“It’s huge,” says Matthew Steckman, who oversees a big share of Anduril’s business.
“Every day I come in and you’re kind of reacting to the next version of how the DoW wants to move fast.”
The bureaucracy around defence procurement is being slashed.
“They’re cutting out paperwork like there is no tomorrow,” says Steve Blank of Stanford University.
Yet there are concerns that too much haste could backfire in various ways.
For the challengers, the risk is that they take on too much too quickly and are unable to cope as contracts grow.
That is more of a problem for Anduril than it is for SpaceX and Palantir, both of which have large contracts with commercial customers and other government departments, giving them greater scale.
Palantir’s focus on software also means it can expand its business relatively quickly.
But for Anduril, along with many would-be neo-primes, scaling up manufacturing could be a challenge.
Anduril has only just started building large production facilities (it recently opened a factory in Ohio on which it spent $1bn).
There are dangers for the government, too.
The Pentagon wants to move towards interoperable weapons systems, rather than the stand-alone platforms typically offered by the legacy primes.
Yet some worry that it could become locked into SpaceX’s launch and satellite services or the battlefield-management systems provided by Palantir and Anduril.
Indeed, although the Pentagon says that it wants to encourage more competition in the defence industry, there are signs that it is as hard as ever to get a foot in the door.
Anduril, for instance, is a serial acquirer of smaller firms, including Blue Force Technologies, maker of the Fury unmanned combat aircraft, which it bought in 2023.
Scott Bledsoe, inventor of the Fury, says that he sold his startup after realising it was too small to “bro its way” to a big defence contract.
But he wishes it were otherwise.
“There is a danger that all we are doing is creating a new breed of legacy primes,” worries Mr Bledsoe.
An insider at one of the neo-primes, when asked whether his firm might develop an elaborate lobbying infrastructure similar to the legacy primes, exclaims, “Hell yeah.”
A further risk is that, in becoming too starry-eyed about the merits of drones and the like, the DoW could neglect conventional weapons that would be vital in a future conflict with China, owing to their ability to travel long distances and penetrate advanced defences.
For society at large, cosy relations between the Trump family and the neo-primes are also a cause for concern.
When Palantir suffered a short-seller’s attack this month, the president, whose first election campaign received a big donation from its founder, leapt to its defence, using its ticker symbol: “Palantir Technologies (PLTR) has proven to have great war-fighting capabilities and equipment.
Just ask our enemies!!!”
Donald Trump junior, his son, is a partner at 1789 Capital, a VC firm that has invested in Anduril.
“Every investor on the planet is an investor in Anduril,” Mr Steckman retorts.
Still, any perception of partisanship could jeopardise the otherwise strong support among many Democratic politicians for defence startups, potentially putting the companies in danger if Republicans lose their grip over the federal government.
Another concern is the use of artificial intelligence to build autonomous weapons.
All neo-primes are advocates of using AI for military purposes.
Palantir has used Anthropic’s Claude models for classified military activity in the war against Iran.
Anduril uses AI for autonomous weapons.
SpaceX’s xAI, maker of the Grok chatbot, has reportedly agreed to do classified work for the Pentagon.
AI is used for target identification and data processing on the battlefield, Mr Steckman says.
But there is always a human involved.
“At the end of the day, a person is making a choice about the employment of any sort of lethality.”
It is fiercely controversial, though.
When Anthropic recently insisted on prohibiting any use of its models for autonomous weaponry or mass surveillance, Mr Hegseth’s DoW blacklisted it as a supply-chain risk.
It is a reminder of how fraught the new era of defence tech remains.
The shake-up under way in America’s military-industrial complex is long overdue.
It would be a shame for it to misfire.
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