Investing in New Defense Technologies

Investments in the defense industry typically include stocks like Lockheed Martin, Boeing, Northrup Grumman, or General Dynamics. These are the folks who build aircraft carriers, fighter jets, stealth bombers, intercontinental ballistic missiles, and the like. RTX (formerly Raytheon) and Leidos Holdings would be more recent additions to the list as they provide high tech tools like patriot missiles and the kinds of information technology that allows autonomous vehicles to fight on a battlefield. A problem for the Pentagon and military procurement is that defense companies typically take years or more than a decade to bring a military application from the idea stage to use on the battlefield. An issue for the investor is that these are all big and secure companies with limited growth potential. For growth one needs to consider investing in new defense technologies. So, how should one go about doing that?

Learn About the Defense Innovation Unit

Bloomberg published a useful article recently that might aid one who is interested in investing in new defense technologies. This entity helps defense startups go from ideas to battlefield-ready weapons and systems. Silicon Valley is where many great ideas come from and where systems are in place for moving quickly from great ideas to great and profitable products. Getting the energy and innovation of Silicon Valley to integrate with the needs of the Pentagon can be a challenge. Folks like Elon Musk can use a fail fast and fix fast approach because they are often not dealing directly with weapons systems that take lives and protect both American troops and the American homeland. The Pentagon is by necessity concerned about billion dollar fighter jets perfectly performing time and time again for decades. Getting solutions that satisfy the needs of national defense and the innovators who are putting money behind new ideas is the job of the defense innovation unit.

Investing in New Defense Technologies

Thousands of AI Drone Aircraft in Two Years

Time and time again over the centuries military people have observed wars in which they are not involved in order to get new ideas and prepare for the next war. Europeans were impressed how the Confederacy used its railways as a way to move men and material rapidly within internal supply lines and efficiently counter a larger Union force. Germany copied this in the 20th century in World War One and Two. The Germans and Russians fought a proxy war in Spain in the 1930s and got new ideas. Today militaries are seeing how an outgunned Ukraine is holding off Russia with the use of cheap drones while Russia is using the same approach to overrun modern air defense systems around Kyiv. With these object lessons in mind the Pentagon wants to have thousands of unmanned semi-autonomous aircraft flying with US fighter aircraft within as little as two years. This is just the tip of the iceberg when it comes to using new technologies to stay ahead of potential enemies (China, Russia, Iran, North Korea, etc.) It is the job of the DUI to help make this happen. Here is where investors might get ideas about where the next Lockheed, Boeing, RTC, etc. might come from.

Money for New Defense Technologies

According to the Bloomberg article the Defense Innovation Unit has set up more than sixty contracts worth in excess of $5 billion since 2015. An issue currently being addressed by the new DIU boss is the fact that a single check does not create a viable or sustainable business. Because working with the Pentagon can turn into a long and painful ordeal, money often runs out and folks just go away. The Pentagon is apparently slow to learn than buying aircraft carriers and new, innovative software solutions are different things that require different approaches. That having been said, there have been success stories. Anduril Industries Inc. and Shield Inc. create surveillance systems and drones and are billion-dollar companies that have steady business within national defense.

New Defense Tech Success Stories

The two defense tech success stories, Anduril and Shield, are both private companies. In order to buy stock in Anduril you need to deal directly with the company or through Nasdaq private market in advance of a possible IPO in 2026 or 2027. Shield is not a publicly traded company either so you need to be an accredited investor and invest privately via a secondary market. In order to spot emerging defense tech opportunities one simply needs to keep track of who is getting contracts with the DIU and news of their progress. An approach like this is a long term investment approach with an extremely long time horizon but holds the promise of getting into one of tomorrow’s mega stocks for cheap on the ground floor.

Tags: , , ,
Previous Post

Who Is Buying Bitcoin ETFs?

Next Post

What Is Bitcoin’s Correlation with Tech Stocks?

Home Privacy Policy Terms Of Use Contact Us Affiliate Disclosure DMCA Earnings Disclaimer