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Share to Facebook Share to Twitter Share to Linkedin Silicon Valley is hoping Trump will usher in major Pentagon budget reforms. The impending arrival of a second Trump administration has brought renewed excitement for Silicon Valley’s ambitions to make weapons and secure the large contracts needed to support them. “Trump is a change candidate, he very much wants to balance the budget and save money, get more for less,” Anduril cofounder Palmer Luckey, who hosted a fundraiser for Trump and donated to Republicans, said on CNBC Wednesday.
“Trump is not going to politicize the defense procurement apparatus.” The defense tech 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 U.S.
military will fall behind China and Russia in the development of cutting edge military technology. Companies like SpaceX, Palantir and Anduril dominate the sector, and funds set up by major venture capital firms like Andreessen Horowitz, General Catalyst and 8VC have spawned a growing number of unicorn-valued companies making drones, autonomous boats, and weapons of war. Shares in Palantir, among the highest profile defense tech companies, soared 8.
61% on Wednesday, extending a 29% spike that’s occurred in just the past five days. Congratulating Trump on X , the company said it “stands ready to work with [Trump] to bring the software revolution to our most important institutions.” Much of the enthusiasm has centered around the growing influence of Elon Musk on Trump’s policies, and speculation that he may take on some government role.
Boosting Luckey on X Wednesday, Elon Musk wrote that it is “Very important to open DoD/Intel to entrepreneurial companies like [Anduril]. Pay for outcomes, not requirements documents!” “The close relationships between [vice president-elect] Vance, Elon and the defense VC and startup ecosystem will create a huge opening for real defense acquisition reform and widening of the number of players,” said Nathan Mintz, CEO of electronic warfare company CX2, and a previous cofounder of unicorn defense company Epirus. Another founder, JC Btaiche of fusion company Fuse, said, “Seeing Elon Musk getting involved and backing the Trump administration gives me hope that there will be positive progress and benefits to the defense tech ecosystem.
” In addition to Musk, other Silicon Valley leaders with major defense interests have aligned themselves with Trump and earned his ear. Marc Andreessen, whose eponymous venture firm invests in defense tech startups through its American Dynamism fund, has been an outspoken advocate for Trump touting his policies as favorable to innovation. He has spoken to the now-president elect and was expected to attend a celebratory election party at Mar-a-Lago property.
Others include Jacob Helberg, an advisor to Palantir who also attended the president’s event, and who has spent much of this year advising Trump’s campaign on AI policy, and investors Joe Lonsdale, of 8VC, and Shaun Maguire, of Sequoia. A major 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 major years-long programs of record before capital dries up; less than 1% of the Pentagon’s contracts were reportedly awarded to venture-backed companies during the fiscal year ending 2023.
With Musk’s input, Silicon Valley defense leaders believe Trump will upend and reallocate the $800 billion Department of Defense budget, much of which is vacuumed up by contracts to large prime contractors such as Lockheed Martin, Northrup Gruman and RTX. “There's been bipartisan consensus that we need to shift from buying costly, big exquisite stuff from primes as opposed to cheap autonomous weapons from emerging companies,” said a venture capitalist with defense investments. “Any Trump admin will encourage [the Pentagon] to act faster.
” Another frustration for emerging defense tech companies is so-called cost-plus contracts, which provide contractors financial incentives to meet certain performance measures. These can provide millions of dollars in windfalls but also can generate vast 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.
“Cost-plus contracting has been demonstrated consistently to be a horrible deal for the American taxpayer,” Bryon Hargis, CEO of missile startup Castelion which has raised $14 million from Andreessen Horowitz and others, told Forbes . It’s an area “Trump has stated he wants to focus on and we hope he does.” But the incoming Trump administration might not be all upside.
The former president has repeatedly suggested ending military support for Ukraine, which could scuttle some contracting opportunities for startups that have secured contracts there, said one venture capitalist, including American drone companies Shield AI and Skydio. Though continued US support for Israel’s war against Hamas could mitigate this with new contract opportunities. Overseas, Trump’s victory is causing uncertainty in Europe’s nascent defense tech sector.
Some there are preparing for the impact of Trump making good on his threat to step back from NATO, or cut a deal with Russian president Vladimir Putin to end the Ukraine war. “With Trump, the only thing predictable is his unpredictability,” said Karl Rosander, CEO of Nordic Air Defense, a Swedish-based company making miniature drones to intercept missiles. “It necessitates an overdue 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 of 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 insiders; both are renowned China hawks. Though Trump has vowed 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.
Both Trump and Biden have taken a strong stance on China, a former intelligence official said, adding that will likely continue in Trump’s new administration. Editorial Standards Forbes Accolades Join The Conversation One Community. Many Voices.
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