May 10th 2025

OF NOTE

The most critical issue for defense tech companies in 2025 is the seamless integration of artificial intelligence (AI) and advanced cybersecurity within a data-centric, interoperable defense ecosystem.

Why This Issue Stands Out

-AI as a Strategic Enabler: AI is transforming every aspect of military operations-from real-time battlefield decision-making and surveillance to predictive analytics and autonomous systems. Defense organizations are rapidly expanding AI applications for intelligence analysis, logistics, and operational efficiency, making mastery of AI-enabled solutions a top priority.

-Cybersecurity as the New Battlefield: As digital connectivity grows, cyber threats from both state and non-state actors are escalating. The rise of zero-trust architectures and the need to secure vast, interconnected networks-especially with the adoption of 5G and IoT-mean that robust, adaptive cybersecurity is essential for operational resilience

-Data-Centric Operations: The defense sector is shifting from network-centric to data-centric architectures, where secure, unified access to data across domains is crucial for informed, rapid decision-making and interoperability. This requires not just technology, but also workforce training and cultural change

-Network Modernization and Tactical Edge: Reliable, secure communication in contested environments is foundational. Upgrading to cloud-enabled, software-defined, and 5G-connected networks is a prerequisite for leveraging AI and maintaining operational advantage

Key Challenges and Opportunities

-Interoperability: Ensuring new AI and cybersecurity solutions can integrate with legacy systems and across allied forces.

-Scalability and Resilience: Building systems that can scale securely and withstand sophisticated cyber and electronic warfare attacks.

-Talent and Culture: Recruiting and training a workforce capable of operating in a data-centric, AI-driven environment

-Regulatory and Ethical Considerations: Navigating the ethical use of AI in autonomous weapons and surveillance, as well as compliance with evolving defense regulations.

INNOVATION

Northrop tests tech to help hypersonic vehicles maneuver without GPS

The successful demonstration of IMU technology on a hypersonic aircraft — which can travel and maneuver at speeds of Mach 5 or higher — is an industry first, according to Jonathan Green, Northrop’s chief technology officer for emerging capabilities development.

Quantum Systems, Tekever join Europe's defense tech unicorn club

Two European drone startups, Germany’s Quantum Systems and Portugal-based Tekever, have achieved unicorn status as VC spending for defense tech heats up.

The defense tech ecosystem gives investors many opportunities

Bill Farmer, managing director at the investment bank BGL, highlights the big bets investors are making on companies touting disruptive defense technologies amid global instability.

Arlington Capital reveals its new defense tech company

Arlington Capital Partners has taken the covers off of its new defense technology company amid the private equity firm’s work to complete the sale of another to a publicly-traded buyer.

GRVTY is like other prior Arlington-backed contractors, in that it is almost exclusively focused on defense and intelligence agencies. This new company revealed Wednesday describes geospatial intelligence, signals intelligence and cybersecurity as among its core technology focus areas.

TECHNOLOGY

German dual-use drone maker becomes unicorn amid defence tech boom

Quantum Systems builds electric, AI-powered autonomous surveillance drones that are dual-use, meaning they can serve both military and civil purposes.

Defence forces can use the unmanned aerial vehicles (UAVs) to spy on enemies and gather intel. The drones can also be used by farmers to inspect their crops, by energy companies to check power lines, and by search and rescue teams to look for survivors.

Anduril's Menace tech now preferred hardware for Palantir's Edge software

Menace systems supported Palantir software at recent field events, such as Project Convergence Capstone 5.

Trump administration picks new DARPA director

Stephen Winchell has been tapped to head the Defense Advanced Research Projects Agency.

The Ultimate Air Defense: Tech Behind Modern Missile Shields

Israel’s air defense system is one of the most advanced in the world, but is it truly impenetrable?

INVESTMENT

7 Best Defense Stocks to Buy Now

The fiscal 2025 National Defense Authorization Act calls for $923.3 billion in U.S. military spending, up 4.1% from 2024 levels. The ongoing war in Ukraine; tensions between China and Taiwan; and conflicts between Israel and Iran, Hezbollah and Hamas may force the U.S. government to increase defense industry investment in the coming years, which could serve as a tailwind for defense industry earnings.

Rising star defense tech startup Mach Industries is raising $100 million, sources say

Mach Industries, the defense tech founded by 21-year-old Ethan Thornton, is about to close a fresh $100 million in financing co-led by new investor Khosla and existing investor Bedrock Capital, a source familiar with the deal tells TechCrunch.

The new round will value the company at around $470 million, according to the source. However, the deal hasn’t closed and terms may still change. The Khosla investor leading the deal is Keith Rabois.

Accel Backs Defense Tech Startup Chaos Industries At $2 Billion Valuation

Accel is co-leading a $275 million funding round into Chaos Industries, a defense tech company that sells a suite of communications and radar products, another major bet for the firm on emerging defense companies.

The new funding for Los Angeles-based Chaos, a Series C round, will value the company at $2 billion, multiple people with knowledge of the deal told Forbes. New Enterprise Associates also co-led the round.

AeroVironment Finalizes BlueHalo Acquisition, Broadens Defense Tech Reach

AeroVironment has completed its transaction with BlueHalo, strengthening its position as a global defense technology leader with integrated capabilities across air, land, sea, space and cyber.

Wahid Nawabi, AeroVironment chairman, president and CEO, said the deal positions the company to move forward as a more unified organization with the scale, talent and technology to lead in key areas of modern defense.

Boosted by defense and Starlink, Orca AI pulls in $72.5M for its autonomous shipping platform

The autonomous navigation market — where ships, guided by AI, steer themselves, resulting in fuel and time savings — is projected to sail past $11 billion by 2028. As a result, companies in this space are pushing on an open door.

The latest is Orca AI, which closed a Series B funding round of $72.5 million led by Brighton Park Capital. Existing investors Ankona Capital and Hyperlink Ventures also participated. The London-based company has now raised over $111 million, including a $23 million funding round last year.

So what drove the new round? In a word: defense.