Hellfire and Brimstone: The Chaotic Defense Department Agenda of the Trump Administration
Blooming in Disarray: Defense Technology Ready for Expansion
The Trump Administration has set the pace like no other in the last 50 years, stirring up a whirlwind of activity through a barrage of Executive Orders and policy changes. Wall Street's movers and shakers are feeling the heat, with the economic fallout from tariffs, job losses in federal employment, and suspensions of some government contracts eating away at the stock market gains since the election. On March 10th, the NASDAQ 100 took a nose dive, plummeting by a staggering 3.8%, confirming that everyone hates uncertainty.
Back in January, I wrote about the surge of defense technology with the new Trump Administration on the horizon. Now, just 50 days in, the rise could be even more ambitious than anticipated.
What's happening at the Defense Department is nothing short of a revolution. In Silicon Valley, the word 'disruption' is tossed around like confetti, embodying the tech industry's ethos. Defense tech aspires to disrupt the entrenched defense industry, shattering the legacy players and bureaucratic inefficiencies. The Trump Administration's defense officials realize that our national security depends on this disruption, which is as vital today as it was before Trump took office. The chaos in the public markets is merely a byproduct; the winds of change are consistently propelling defense tech, including advanced and often commercially driven technologies essential for national security, such as AI, cyber, autonomy, and space.
The forces driving disruption are myriad: increasing geopolitical tensions, the effective military use of commercial technologies deployed in conflicts like Ukraine, and the increasing power of software- or AI-enabled functionality to provide more resilient communications, connected sensors, drones, and cyber-hardened systems for better decision making. Secretary of Defense Pete Hegseth's confirmation hearings and early pronouncements leave no doubt that the Department of Defense is gearing up to procure more commercial technology, rapidly adopt unmanned systems, and slash the red tape to speed new capabilities to the troops.
NYT Mini Today: Hints, Clues, and Answers for Wednesday, March 12
Greenland Election Results: The Opposition Party, Backing a Slower Independence Push, Emerges as a Big Winner
Greenland Has Spoken: What Trump Doesn't Get About Us
Disrupting the Status Quo at the Defense Department
Since Secretary Hegseth assumed office, there's been a flurry of activity. A study is underway to identify new technologies that could be integrated into the nation-wide missile defense program, "Iron Dome." This project would be a bonanza for space-based sensors and launch capabilities. On March 7th, a directive was issued to speed software acquisition through the use of Other Transactions, a rapid contracting alternative to Federal Acquisition Regulations. The Defense Department is also strongly hinting at the formation of a new commercial-engineering version of DARPA to expedite the procurement of cutting-edge technologies. Adding fuel to the fire, President Trump introduced the new White House Office of Shipbuilding to revitalize shipbuilding capabilities for both commercial and military purposes.
All of these initiatives build upon the successes of the past Administration, including the record $1 billion allocated to DIU (Defense Innovation Unit) by Congress and the $1 billion in loans usable by the Office of Strategic Capital to shore up crucial parts of the defense industrial base. The Replicator initiative, announced in August 2023, is closing in on its goal of fielding thousands of attritable, unmanned systems in the Indo-Pacific theater by this summer. The Trump Administration's policies reinforce the shift from Europe to the Indo-Pacific as the cornerstone of America's security strategy.
Even cautionary signs, such as Secretary Hegseth's directive to plan for an 8% reduced budget, may just be exercises to reallocate funds from historical programs to better align with the Administration's agenda. The exceptions to the planned reductions specify areas supporting the new agenda that will not be trimmed: cyber, autonomous systems (like the USAF's Collaborative Combat Aircraft), counter-drone systems, and support for the Indo-Pacific theater.
Traditional Defense Stocks Tumble, While New Technology Players Shine
In this new era, traditional aerospace and defense stocks have faltered. Over the past three months, stocks like Lockheed Martin and General Dynamics have plummeted by 19% and 13%, respectively, due to concerns over reduced military budgets and shifting U.S. foreign policy priorities. The stock of the nation's largest shipbuilder, Huntington Ingalls, has tumbled 34% in the past year, underlining the need for White House focus on this industry.
However, these declines are indicative of the trend emerging, as spending shifts away from large defense platforms like fighter jets and tanks and towards software-enabled capabilities, unmanned systems, and space assets. Companies investing in these new technologies are reaping record valuations. SpaceX, for instance, boasts a staggering $350 billion market cap (up 67% in 2024), while Anduril sits at $28 billion (up 100% last year) and Palantir clocks in at an impressive $179 billion (up nearly 5X in the last year). The combined market caps of these three companies alone surpass the combined market caps of the five largest U.S. defense primes: Boeing, RTX Corporation, Lockheed Martin, Northrop Grumman, and General Dynamics.
Fiscal Uncertainty and the Urgent Need to Modernize Defense Platforms and Technologies
Though the defense budget for the current fiscal year remains uncertain, both the House and Senate versions of defense appropriations suggest significant increases: $150 billion and $100 billion, respectively. The need for additional defense spending is crucial to support the President's "peace through strength" doctrine, as the nation spends only 2.9% of its GDP on defense, the lowest level in 75 years. Also, only 21% of the fiscal year 2024 defense budget is allocated to buy both aging platforms (aircraft carriers and fighter jets) and newer technologies (unmanned systems and AI-based software). Consequently, there is a more pressing need than ever before to modernize outdated fleets and squadrons while also investing in complementary emerging technologies. The Trump Administration's initiatives may carve out space for increased spending on new platforms and new technologies. The increases proposed by the House and Senate may represent small improvements on the overall $850 billion defense budget, but if the Pentagon spends more on new technologies, these percentages will be momentous for smaller companies that supply AI, cyber tools, autonomy, and space systems.
While the Trump Administration's opening days have brought about a dizzying array of changes, the disruptive themes for military modernization are remarkably consistent. Clear and concise actions and rhetoric underscore an emphasis on procuring commercial technology, broadening the defense industrial base, and adopting more software-enabled and unmanned systems. Such consistency highlights the growing value for a new generation of defense suppliers, emulating the pioneering paths of Anduril, Shield AI, and Palantir to include rising stars like HawkEye 360, SeaSats, Albedo, and Starfish Space. The nation's security has never been more reliant on our military deploying new technologies like AI, cyber, autonomy, and space—the industries of the future—where America still dominates the global stage.
- Investors are closely watching the Defense Department under the Trump Administration, as emerging technologies such as AI, cyber, autonomy, and space are consistently being prioritized for national security purposes, despite the ongoing economic uncertainty in 2023.
- Traditional defense stocks have suffered, with companies like Lockheed Martin, General Dynamics, and Huntington Ingalls experiencing declines, due to the shift in spending towards software-enabled capabilities, unmanned systems, and space assets. On the other hand, companies focusing on these new technologies, like SpaceX, Anduril, and Palantir, have seen significant increases in market valuations.
- Despite fiscal uncertainty, the need for modernizing defense platforms and technologies is urgent. The Trump Administration's initiatives, such as the planned increases in defense spending and the formation of a commercial-engineering version of DARPA, may provide opportunities for increased investment in new technologies, benefiting smaller companies specializing in AI, cyber tools, autonomy, and space systems.
