Iran war is defense tech’s chance to shine, but few systems are ready

The Iran conflict is redefining fashionable fight for the U.S. and driving demand for lower-cost tech.

It is the precise scenario Protection Secretary Pete Hegseth warned in opposition to just a few months in the past.

“We can’t afford to shoot down cheap drones with $2 million missiles,” Hegseth mentioned in December. “And we ourselves should be capable to area massive portions of succesful assault drones.”

Two days into the conflict, the U.S. used up a reported $5.6 billion in munitions. In the meantime, Iran has wreaked havoc on navy bases, vacationer facilities and data centers utilized by America’s largest tech giants with swarms of low-cost Shahed drones that value between $20,000 and $50,000, in line with public estimates.

That is the second protection tech and Silicon Valley have been ready for. 

For years, protection tech has fought to show itself in Washington and seize a piece of the ballooning Pentagon budget snatched up by protection primes like Lockheed Martin, RTX and Northrop Grumman.

The conflict, coupled with President Donald Trump‘s navy reindustrialization efforts, might supply that long-awaited catalyst.

“The world is extra harmful,” mentioned Mike Brown, accomplice at Shield Capital. “Applied sciences that had been on the drafting board a decade in the past have now confirmed themselves on the battlefield.”

The U.S. has deployed its personal model of the Shahed in Iran known as the Low-cost Uncrewed Fight Assault System, or LUCAS. The drone, constructed by Arizona-based SpektreWorks, prices about $35,000 per unit in line with industry estimates.

The Department of Defense can be reportedly out there to purchase extra.

Tara Murphy Dougherty, CEO of protection software program startup Govini, mentioned LUCAS is without doubt one of the solely main new methods rising within the Iran conflict, however manufacturing is modest. Most U.S. air capabilities in Iran have been with conventional fighter jets and bombers.

In counter-drone tech, Aerovironment this week introduced the Locust X3 laser system, which the corporate claims will cost under $5 a shot. Contractors Lockheed Martin, RTX and Leidos additionally supply options.

Taser maker Axon entered the sector in 2024 with its Dedrone acquisition. Startups Anduril and Epirus are additionally scaling counter-drone warfare capabilities.

Regardless of their real-world functions, these instruments accounted for under $4.7 billion of the fiscal 2026 finances. That is in line with knowledge from Obviant, an intelligence startup that focuses on protection acquisition, contracting and budgeting knowledge. 

“America was constructed on competitors, so let’s be aggressive,” mentioned Brett Velicovich, co-founder of Powerus, a drone firm backed by Trump’s sons. “Let the businesses which have the most effective know-how win, as a result of it is solely helpful to our nation.”

Main protection tech winners to date embody Oculus-creator Palmer Luckey’s Anduril and software program AI firm Palantir. Each just lately signed multibillion-dollar-ceiling contracts with the Pentagon.

Palantir’s instruments are already deeply ingrained within the DOD, and CEO Alex Karp alluded to the truth that the U.S. and its Center East allies are utilizing the corporate’s Maven platform.

The sector has seen a surge in reputation in Silicon Valley, with deal worth practically doubling to $49.9 billion final yr from $27.3 billion in 2024, in line with Pitchbook knowledge. 

Regardless of that pleasure, spending on the sector accounted for lower than 1% of contract {dollars} in 2025, according to data from the Ronald Reagan Presidential Foundation and Institute. Anduril, Palantir and Elon Musk‘s SpaceX account for 88% of that.

The push to advance the navy’s tech capabilities started effectively earlier than the conflict in Iran, and Trump stepped up efforts to rebuild getting old navy methods early in his first time period with a collection of government orders.

Trump’s signature $185 billion “Golden Dome” missile protection system can even present new alternatives for startups, together with shipbuilding and drone companies.

A number of protection tech startups CNBC spoke with for this story mentioned demand has skyrocketed from DOD clients for the reason that U.S. and Israel first struck Iran on the finish of February. A lot of these clients have provided to purchase out capability or requested companies to ramp manufacturing, the companies mentioned. 

“We have had very clear demand indicators popping out of this administration and the Pentagon,” mentioned Ryan Tseng, president and co-founder of Protect AI, which hit a $12.7 billion valuation this week. “Individuals are extra prepared than they ever have been.”

Gauging demand is a troublesome job for any enterprise, however significantly important for companies reliant on enterprise funding to maintain factories operating. On the identical time, the federal government hasn’t provided a gradual sufficient movement of contracts to rationalize scaling for a few of these companies.  

That is leaving protection tech companies divided over whether or not to hike capability to win offers and danger profitability, or maintain off and probably miss alternatives. 

John Tenet, CEO of radar and communications tech maker Chaos Industries, mentioned his manufacturing workforce is constructing day and evening to satisfy buyer demand indicators. The corporate just lately raised $510 million at a $4.5 billion valuation.

“When you’re ready for the contract to scale manufacturing, you are already too late,” he mentioned.

Many of those companies are already working at a sooner clip than in earlier years. 

One counter-drone startup, which requested to not be named because of the nature of the corporate’s work with the federal government, instructed CNBC that this yr it is on observe to double the variety of methods created because it first launched its device.

The startup mentioned that each one these methods have been bought to clients, and it will solely enhance capability if given a contract by the U.S. authorities. 

That is the difficult a part of working with the federal government. 

Demand seems insatiable, however some protection companies instructed CNBC that they need contracts earlier than shelling out on new methods. That is much more important for companies constructing multi-million greenback instruments with intricate provide chains.

Companies might stockpile to get forward of demand, however fast innovation might rapidly outpace their tech. That is why specializing in a single product is a “very harmful recreation,” mentioned Accel accomplice Ben Quazzo.

“When you get up in the future and that is out of date, what you are promoting is in bother,” Quazzo mentioned.

The Pentagon plans to funnel billions over the subsequent few years into protection know-how, with Trump calling for a $1.5 trillion military budget in 2027. Nevertheless, a finances managed by Congress with restricted long-term visibility, coupled with a sluggish contracting course of hindered by forms, creates some roadblocks.

“The Pentagon is the one firm within the globe that’s sure up by procurement and gross sales guidelines that someone else is writing,” mentioned Morgan Plummer, vice chairman of coverage design and supply at Americans for Responsible Innovation.

At the same time as tech corporations ramp up manufacturing, specialists mentioned few of those instruments are literally reaching battlefields overseas, and the manufacturing scale is way too low to trigger a major influence.

Hegseth’s acknowledgment of the drone-missile value disparity got here with a name for the business to construct 300,000 drones “rapidly and inexpensively.”

The trouble would ship “tons of of 1000’s of them by 2027,” Hegseth mentioned.

Weeks after the primary part of this system began, the Iran conflict started.