Silicon Valley hopes Trump will bring major budget reforms to the Pentagon.
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The looming arrival of a second Trump administration has brought new excitement to Silicon Valley’s ambitions to manufacture weapons and secure the huge contracts needed to support them.
“Trump is a candidate for change, he really wants to balance the budget and save money, get more for less,” Anduril co-founder Palmer Luckey, who organized a fundraiser for Trump and donated, told CNBC on Wednesday. for the Republicans. “Trump will not politicize the defense procurement apparatus”.
The defense technology space has become a major investment sector in recent years, driven by the wars in Ukraine and the Middle East, rising tensions with China and fears that the US military will fall behind China and Russia in developing more advanced technology. advanced military. Companies like SpaceX, Palantir and Anduril dominate the sector, and funds raised by big venture capital firms like Andreessen Horowitz, General Catalyst and 8VC have spawned a growing number of unicorn companies making drones, autonomous boats and weapons of war.
Shares in Palantir, among the most high-profile defense technology companies, rose 8.61% on Wednesday, extending a 29% gain that occurred in just the past five days. Congratulating Trump on X, the company said it is “ready to work with him [Trump] to bring the software revolution to our most important institutions.”
Much of the excitement has centered around Elon Musk’s growing influence on Trump’s policies and speculation that he may take on some government role. Raising Luckey on Wednesday X, Elon Musk wrote that it is “very important to open up DoD/Intel to entrepreneurial companies like [Anduril]. Pay for results, not claim documents!”
“The close relations between [vice president-elect] Vance, Elon and the defense VC and startup ecosystem will create a huge opening for real defense procurement reform and expanding the number of players,” said Nathan Mintz, CEO of electronic warfare company CX2 and a former co-founder of the company protective unicorn Epirus. Another founder, JC Btaiche of fusion company Fuse, said: “Seeing Elon Musk getting involved and supporting the Trump administration gives me hope that there will be positive progress and benefits for the defense technology ecosystem.”
In addition to Musk, other Silicon Valley leaders with big defense interests have aligned themselves with Trump and won his ear. Marc Andreessen, whose eponymous venture firm invests in defense technology startups through its American Dynamism fund, has been an outspoken advocate for Trump, touting his policies as favorable to innovation. He has spoken with the president-elect and was expected to attend a celebratory election party at the Mar-a-Lago estate. Others include Jacob Helberg, an adviser to Palantir who also attended the president’s event, and who has spent much of this year advising the Trump campaign on AI policy, and investor Joe Lonsdale, of 8VC , and Shaun Maguire, of Sequoia.
A big challenge for defense tech startups has been selling to the Pentagon. Many emerging companies secure small R&D contracts, but often struggle to overcome the so-called “Valley of Death” by securing large record programs years before the capital dries up; less than 1% of Pentagon contracts were reportedly awarded to venture-backed companies during the fiscal year ending in 2023.
With Musk’s input, Silicon Valley defense leaders believe Trump will change and reallocate the Defense Department’s $800 billion budget, much of which has been drained by contracts with major prime contractors such as Lockheed Martin, Northrup Gruman and RTX. “There’s been bipartisan consensus that we need to move away from buying expensive, fancy stuff from the mainstream, as opposed to cheap autonomous weapons from emerging companies,” said one venture capitalist with defense investments. “Any Trump administration will encourage it [the Pentagon] to act faster.”
Another frustration for emerging defense technology companies are so-called cost-plus contracts, which offer contractors financial incentives to meet certain performance measures. These can provide millions of dollars in windfalls, but can also generate huge cost overruns. A 2024 Defense Inspector General report recommended the Pentagon “improve its contracting practices” after finding that officials had not properly justified award fees.
“The cost-plus contract has repeatedly been demonstrated to be a terrible deal for the American taxpayer,” said Bryon Hargis, CEO of rocket startup Castelion, which has raised $14 million from Andreessen Horowitz and others. Forbes. It’s an area where Trump has stated he wants to focus, and we hope he does.
But the incoming Trump administration may not be all upside down. The former president has repeatedly suggested ending military support for Ukraine, which could destroy some contracting opportunities for startups that have secured contracts there, a venture capitalist said, including US drone companies Shield AI and Skydio . Although continued US support for Israel’s war against Hamas could mitigate this with new contract opportunities.
Abroad, Trump’s victory is causing uncertainty in Europe’s nascent defense technology sector. Some there are bracing for Trump’s influence by making good on his threat to withdraw from NATO, or cut a deal with Russian President Vladimir Putin to end the war in Ukraine.
“With Trump, the only thing predictable is his unpredictability,” said Karl Rosander, CEO of Nordic Air Defense, a Sweden-based company that makes miniature drones to intercept missiles. “This calls for a belated wake-up call for Europe: we cannot delude ourselves that the new America will save the old world from the growing threats on its borders.”
Beyond all this hangs perhaps the most defining question: who will Trump tap for Secretary of Defense. Some names being discussed include former CIA Director Mike Pompeo and Senator Tom Cotton, according to industry sources; both are the famous hawks of China. Although Trump has pledged tariffs on Chinese products — including advanced technologies — he has not discussed a strategy for securing Taiwan, which is under constant threat of attack from China. “Trump, and then Biden, took a strong stance on China,” said one former intelligence official. “I’m pretty sure that will be maintained with Trump’s return.”