As some of the market’s biggest tech names lose steam, investors are turning to less crowded corners of the high-tech sector where growth and disruption remain alive and well. Global defense stocks have rocketed higher in 2025, particularly those focusing on AI applications and other cutting-edge defense technology. These weapons are changing the way wars are fought and are having an equally significant impact on the way the Defense Department spends its enormous budget. The implications are both exciting and frightening.
Rising global defense budgets have contributed to renewed demand for traditional defense assets, such as fighter jets, ballistic missiles, and armored vehicles and tanks, made by industry’s incumbents such as Lockheed Martin, Raytheon, and Boeing. However, innovation in many weapons technologies, led by relative newcomers such as Anduril and Shield AI, will see a growing share of funds to promote development of futuristic weapons such as autonomous drone swarms, lasers that can shoot down small aircraft, and hypersonic missiles that glide undetected through the atmosphere at more than five times the speed of sound.
Here are a few of the latest technologies and their impact on modern warfare.
Autonomous Drones & Counter-Drone Systems: The Democratization of Air Power
Autonomous drones powered by artificial intelligence are changing the way battles are fought. Real-time innovations coming from the front lines of the Russia-Ukraine war highlight the evolving capabilities of drone technology. By enhancing surveillance, reconnaissance, and logistics operations, these unmanned systems can identify enemy positions, deliver precision-guided strikes, and carry out high-risk missions without endangering human lives. Imagine dozens of quadcopter drones launched from the back of moving remote-controlled vehicles, each loaded with different types of explosives, sent on a coordinated attack of military camp in a remote location. Anyone who has seen a drone 4th of July light show can attest to the operational capabilities of hundreds of swarming drones powered by artificial intelligence.
Several innovative companies are driving the next generation of drones. For example, Shield AI, a San Diego-based defense private tech startup, specializes in the development of affordable unmanned aircraft systems, or UAS. Shield AI’s flagship product, Hivemind, utilizes AI software that enables drones and other autonomous systems to operate without the need for GPS. Each drone creates a geographic map using onboard sensors and cameras, allowing it to evade anti-drone frequency-jamming defenses. In addition to its AI drones, the company has developed other powerful crewless vehicles, such as the V-BAT drone. The V-BAT, which weighs 125 pounds and is 9 feet long, can be deployed within fifteen minutes by a three-person team and be launched vertically from a boat or the top of a building. The V-BAT also utilizes the Hivemind AI software and is already being deployed in Ukraine to assist in surveillance and reconnaissance missions.
The battlefield of the future is likely to see even greater integration of autonomous systems. Other potential use cases include AI-enabled drones flying alongside piloted fighter jets, as well as AI-piloted F-16s designed for human-machine dogfighting. The Air Force is already preparing for a fleet of over 1,000 AI-enabled UAS that is expected to be operational by 2028. The role of these aerial and ground-based autonomous systems in the military is likely to expand over the next decade, particularly as costs decrease and capabilities improve.
Hypersonic Weapons: Higher Speeds And Greater Accuracy
Hypersonic weapons have been part of the military arsenal for a long time, but new technologies offer enhanced speed, maneuverability, and unpredictability. A predictable missile flight makes it easier for enemy forces to intercept and counter an attack. Unlike traditional ballistic missiles that follow predetermined arcs, hypersonic glide vehicles, known as HGVs, and hypersonic cruise missiles, referred to as HCMs, can maneuver mid-flight at speeds exceeding Mach 5. HGVs are launched by rockets and glide toward targets, while HCMs use air-breathing engines to maintain hypersonic speeds. With adversaries like China and Russia aggressively pursuing these technologies, the U.S. has committed significant resources to developing its own capabilities, with the Department of Defense requesting $6.9 billion in R&D for hypersonic weapons in 2025, up from $4.7 billion in FY 2023.
One of the most disruptive hypersonic missile manufacturers is Anduril Industries. Its founder, Palmer Luckey, the creator of Oculus VR, is changing the way rockets are designed and manufactured. Unlike legacy defense contractors, which have struggled to meet demand for high-performance rocket launchers, Anduril is an independent supplier that pushes innovation through single-flow manufacturing. This manufacturing process, employed by successful companies such as Toyota Motor, can reduce inventory costs, enhance quality, increase flexibility, and boost productivity.
Similar to Shield AI, the company is known just as much for its software as it is for its hardware. Using its proprietary software, Lattice, which has both commercial and military applications, the company produces high-performance propulsion systems at a fraction of the cost of existing systems. For example, its Barracuda product line claims to use up to 50% fewer parts and 95% fewer tools, leading to a 30% reduction in per-unit missile cost, according to Air and Space Forces Magazine. The Barracuda-250 has a range exceeding 370 kilometers when air-launched and over 278 kilometers when ground-launched, with a payload capacity of 16 kilograms. The missiles can be launched from fighter jets, helicopters, drones, surface vessels, or ground-based launchers. The military views Anduril missiles as a more affordable and readily available alternative to existing cruise missiles, allowing for larger stockpiles and faster production in the event of a prolonged conflict.
Global growth in hypersonic weapons means the U.S. must develop appropriate defensive systems alongside its offensive capabilities. Trump’s Golden Dome executive order is one example. Ordered in January, the Golden Dome initiative aims to defend the United States “against ballistic, hypersonic, advanced cruise missiles, and other next-generation aerial attacks from peer, near-peer, and rogue adversaries.” The project envisions a network of hundreds of orbiting satellites to detect, track, and potentially intercept incoming missiles. Existing missile defense systems rely on ground-based radars and interceptors. In contrast, the Golden Dome would utilize surveillance and attack satellites to create a layer of protection, transforming space into the next battleground in missile defense.
Directed Energy Weapons: The Dawn Of The Laser Era
Directed energy weapons, known in military circles as DEWs, are high-tech systems that once belonged in the world of science fiction but are quickly becoming battlefield reality. DEWs use concentrated energy to neutralize threats. These technologies fall into two main categories: high-energy lasers, which emit focused beams of photons; and high-power microwaves, which shoot radio-frequency waves to disrupt or destroy electronics. Lasers offer high accuracy and low-cost deployment, making them especially effective in prolonged air, sea, and space-based warfare. On the other hand, microwaves can stealthily disable electronics in drones, radio-controlled bombs, or radar systems from a distance.
The military is already using these technologies. For example, the U.S. Navy has equipped destroyers with 150-kilowatt laser systems capable of shooting down drones, small boats, and mortar rounds, while the Army’s 50kW DE M-SHORAD system arms Stryker armored vehicles to defend ground assets from unmanned aircraft, rockets, and artillery fire. One of the biggest advantages of laser systems is cost. As long as there is a power source, a laser can fire repeatedly, making it a more affordable option than million-dollar missiles. It’s real-world Space Invaders for those who remember the popular arcade game from the 1970s.
Microwaves, on the other hand, are particularly useful in drone defense. Epirus, a California-based startup, has developed Leonides, a microwave defense system that utilizes powerful electromagnetic pulses to disrupt electronic devices. This transportable, affordable technology can be used to counter drone swarms rather than relying on expensive kinetic counter-attack measures.
As DEWs become more powerful and pervasive, they will likely alter battlefield tactics and force the development of new defense strategies. Their invisible operation makes early detection difficult, while their precision and speed could make traditional interceptors and armored systems obsolete. However, their use raises logistical challenges such as the providing continuous power sources to meet the massive power demands of high-output lasers. The Department of Defense is addressing this issue via its Project Pele, which is a program to develop mobile nuclear microreactors.
The rise of directed energy weapons necessitates new kinds of protection for vehicles, hardened electronics, and counter-DEW systems. Investment in both offensive and defensive directed energy weapons technology will be critical for any military to remain competitive. Compared to the existing arsenal of conventional weapons, DEWs offer precision, discretion, cost advantages, and additional range — and the technology is improving every year.
Defense Technology Investment Opportunities
These technological advancements, along with a global rearmament movement, have brought global defense stocks back into the limelight. According to a December 2024 analysis by Global X, global defense expenditures are expected to increase by approximately 40% from 2023 to 2030.
Publicly traded defense stocks are rallying in anticipation of higher revenues and profits. For example, tech-driven firm Palantir Technologies has seen a nearly 70% surge in 2025. Some non-U.S. defense stocks are doing even better. Rheinmetall is benefiting from Germany’s commitment to rearm its military, with its stock price rising nearly 200% year to date.
Investors seeking broad exposure to the sector may consider the Global X Defense Tech ETF, ticker SHLD. SHLD, which has returned 56% in 2025, targets companies at the intersection of defense and technology. Its top holdings include BAE Systems, Rheinmetall, Lockheed Martin, and Palantir.
Unfortunately, companies like Shield AI and Anduril are private and not readily accessible to retail investors, although both have seen strong valuations in their latest capital raises. Anduril, for example, just announced a $2.5 billion raise at a $30.5 billion valuation, more than double the company’s previous valuation.
Palmer Luckey’s view of the future resonates with investors. “AI is the only possible way we can keep up with China’s numerical advantage,” Luckey said in an April 2025 TED talk. “We don’t want to throw millions of people into the fight like they do. We can’t do it, and we shouldn’t do it. AI software allows us to build a different kind of force, one that isn’t limited by cost or complexity or population or manpower, but instead by adaptability, scale and speed of manufacturing.”
Tomorrow’s Military: Both Exciting And Frightening
The global defense tech rally is more than just an investment trend. It provides a glimpse into the future of warfare, where software, autonomy, and energy-based systems drive military superiority. The transformation underway is mind-boggling. Technologies such as AI-powered drones, precision hypersonic missiles, and directed-energy weapons promise better outcomes while also providing the potential to reduce casualties and promote deterrence.
However, this future carries unsettling implications. It’s possible that autonomous systems that reduce risk for soldiers can make armed conflict easier to wage. The same hypersonic missiles that deter aggression from other countries may fall into the hands of non-state actors who are unconcerned about retaliation. And while lasers and microwaves may offer clean, tactical alternatives to kinetic force, they open the door to a new arms race and their invisibility creates challenges in attribution and accountability. For example, if a commercial airline is shot down with a laser, it’s much harder to identify the culprit.
In that sense, the rapid pace of defense innovation is both exciting and frightening. Investors may see opportunities in the companies driving defense innovation, but policymakers must consider the ethical and geopolitical ramifications. In the same way that consumer technology has changed the way we live and work, defense technology will have an equally large impact on how we fight and defend.
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