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

The Iran war is redefining modern combat for the United States and increasing demand for lower-cost technology.

This is exactly the situation that Defense Secretary Pete Hegseth warned about a few months ago.

“We can’t afford to hit cheap drones “With $2 million worth of missiles,” Hegseth said in December. “And we should be able to field large quantities of capable strike drones.”

Two days after the start of the war, the United States used a reported report. $5.6 billion in ammunition. Iran, meanwhile, has wreaked havoc on military bases, tourist attractions and data centers used by America’s biggest tech giants with swarms of low-cost Shahed drones that, according to public estimates, cost between $20,000 and $50,000.

The moment that defense technology and Silicon Valley have been waiting for has arrived.

Defense technology has struggled for years to prove itself in Washington and capture some of the ballooning Pentagon budget captured by defense bonuses. LockheedMartin, RTX And Northrop Grumman.

The war, combined with President Donald Trump’s military reindustrialization efforts, could offer the long-awaited catalyst.

“The world is more dangerous now,” said company partner Mike Brown. Shield Capital. “Technologies that were on the drawing board a decade ago have now proven themselves on the battlefield.”

The United States has deployed its own version of the Shahed in Iran, called the Low-Cost Uncrewed Combat Strike System, or LUCAS. Drone produced by Arizona-based company SpektreWorksThe cost per unit is approximately $35,000. industry forecasts.

Department of Defense is also reportedly in the market to purchase more.

Tara Murphy DoughertyThe CEO of defense software startup Govini said LUCAS was one of the only major new systems emerging in the Iran war, but production was modest. Most of the US’s air capabilities in Iran are provided by conventional fighters and bombers.

In counter-drone technology, aviation environment This week the company’s claimed Locust X3 laser system was announced It will cost under $5 one shot. Contractors Lockheed Martin, RTX and leidos We also offer solutions.

taser maker axon It entered the sector in 2024 with the acquisition of Dedrone. Startups Anduril and Epirus it is also scaling up anti-drone warfare capabilities.

Despite their real-world applications, these tools accounted for only $4.7 billion of the fiscal 2026 budget. This is according to the data received openAn intelligence initiative focused on defense procurement, contracting and budgeting data.

“America was built on competition, so let’s be competitive,” said co-founder Brett Velicovich. PowerusA drone company backed by Trump’s sons. “Let the companies with the best technology win, because this will only benefit our country.”

Biggest defense tech winners so far include Oculus creator Palmer Luckey’s Anduril and software AI company palantir. Both signed recently multi-billion dollar cap contracts With the Pentagon.

Palantir’s tools are already deeply embedded within the Department of Defense, and CEO Alex Karp has hinted that the US and Middle East allies are using the company’s Maven platform.

The industry’s popularity in Silicon Valley has soared, with deal value nearly doubling from $27.3 billion in 2024 to $49.9 billion last year, according to Pitchbook data.

Despite this excitement, spending on the sector constituted less than 1% of contract amounts in 2025. according to data from Ronald Reagan Presidential Foundation and Institute. Anduril, Palantir and Elon Musk’s SpaceX account for 88% of that.

The effort to improve the military’s technological capabilities began long before the war in Iran, and Trump stepped up efforts to rebuild aging military systems early in his first term with a series of executive orders.

“Trump’s signature is 185 billion dollars”The “Golden Dome” missile defense system will also provide new opportunities for startups. shipbuilding And drone companies.

Several defense tech startups interviewed by CNBC for this story said demand has grown rapidly since 2017 Department of Defense customers since the US and Israel first struck Iran in late February. Many of these customers are offering to buy capacity or asking companies to increase production, the businesses said.

“We have received very clear demand signals from this administration and the Pentagon,” said Ryan Tseng, president and co-founder of Shield AI. $12.7 billion valuation This week. “People are more prepared than ever.”

Measuring demand is a challenge for any business, but it’s especially critical for firms that rely on venture capital to keep factories running. At the same time, the government has not offered a steady enough flow of contracts to make scaling rational for some of these businesses.

This leaves defense technology companies divided over whether they should add capacity to win deals and risk profitability, or wait and potentially miss opportunities.

John Tenet, CEO of radar and communications technology manufacturer Chaos IndustriesHe said the production team is working day and night to meet customer demand signals. The company recently Raised $510 million With a valuation of $4.5 billion.

“If you are waiting for the contract to scale production, you are already too late,” he said.

Many of these businesses are already operating at a faster pace than in previous years.

A counter-drone startup, who asked to remain anonymous due to the nature of the company’s work with the government, told CNBC that it is on track to double the number of systems created this year since it first launched its tool.

The startup said all these systems have been sold to customers and capacity will only be increased if a contract is awarded by the US government.

That’s the hard part about working with the government.

Demand appears insatiable, but some defense firms told CNBC they want contracts before moving to new systems. This is even more critical for businesses that produce multimillion-dollar vehicles with complex supply chains.

Businesses may stock up to stay ahead of demand, but rapid innovation can quickly outpace their technology. That’s why focusing on a single product is “a very dangerous game,” Accel partner Ben Quazzo said.

“If you wake up one day and it’s no longer relevant, your business is in trouble,” Quazzo said.

The Pentagon plans to pour billions of dollars into defense technology over the next few years, and Trump is calling for a $1.5 trillion military budget in 2027. But a budget managed by Congress with limited long-term visibility, combined with a slow contraction process hindered by bureaucracy, creates some obstacles.

“The Pentagon is the only company in the world that is bound by buying and selling rules that someone else wrote,” said Morgan Plummer, vice president of policy design and distribution. Americans for Responsible Innovation.

Even as technology companies ramp up production, few of these vehicles reach battlefields abroad and the scale of production is too low to make a significant impact, experts said.

Hegseth’s admission of the drone missile cost disparity came alongside a call for the industry to produce 300,000 drones “quickly and cheaply.”

This effort will deliver “hundreds of thousands by 2027,” Hegseth said.

Weeks after the first phase of the program began, the Iran war began.