Defense companies used to trade like industrial conglomerates: 1–2× revenue, low growth, dividend yield. Then Palantir went public and rerated the entire category. Today, Anduril ($28B private) and Shield AI ($2.7B private) are valued like software companies, not like Lockheed.
Why the repricing
- Software margins: modern defense companies sell as much code as hardware. Gross margins approach SaaS.
- Faster procurement: the DoD's Other Transaction Authority lets them buy from startups without 18-month RFP cycles. Anduril and Shield AI exploit this aggressively.
- Ukraine effect: European defence budgets have doubled in 3 years. US allies are buying directly from US startups.
- AI tailwind: defense tech is one of the few places where AI has obvious near-term revenue applications.
Implication for employees
If you're at a defense-tech unicorn, the valuation reflects a market belief that the new model (software-style margins, fast procurement) is sustainable. The risk is mostly political: a change in DoD procurement preferences, or a wind-down of Ukraine spend, could compress multiples back toward Lockheed territory.