Go Long on Defence Stocks Baby: The Military Industrial Complex is back, bigger than ever!
Between NATO spending boosts, new military emergencies in Ukraine, Gaza, Congo and the rise of Peter Thiel’s Palantir, it’s hard to lose now in the gun running game.
On the 25th of June, 2025 NATO’s general assembly announced a ground-breaking commitment. All members (except for the slightly anti-war partner Spain) agreed to meet a new threshold of 5% of GDP spending on military budgets. It was a massive reversal from years dancing around the pole by most members of NATO to avoid even meeting the 2% figure previously demanded. And it proves what can be scrounged from sofa cushions when it’s time for the ‘big guns’.
But this is just part of a multi-year trend in the mega rise of the Military-Industrial Complex, with major defence companies now having a combined market cap of $1.15 trillion, and government outlays on their military reaching $2.7 trillion in 2024, a near 10% increase on 2023. It will only get greater in 2025, and especially 2026, when US spend alone is expected to breach $1 trillion for the first time ever. Wow, who said wars were getting stopped!
So when did we all get on the War train - and what does it mean for our small, fragile planet that the tools deigned to blow up and destroy us, more efficiently than ever, are suddenly more valuable and profitable than ever? Only good things one assumes, at least for the shareholders. Global military spending had been on a long term decline ever since the 1990s, as the Cold War, and the great threat to the free world passed away, to be replaced by a western-style capitalist Russia that would never turn on us again!
The foundations for the shift started thanks to the American trauma of 9/11, and the massive security infrastructure required to support two at-scale wars in Iraq and Afghanistan. No small pivot.
And so began the global rise in arms funding - mostly to catch up with the US. This accelerated as President Trump 1.0 declared NATO a rip-off for the Americans, and a bunch of stuff around the whole free-loader thing. And to be honest - he wasn’t that wrong. And it began proving that NATO for the US could be less about global consensus on American dominance and more about setting a floor on military budgets in the North Atlantic. “Vive le Liberté, égalité, fraternité!”
Surprisingly though, Trump’s approach to European allies wasn’t something Joe Biden wanted to fix, much like Trump’s tearing up of the Iran JCPOA deal or the Abraham Accords, none of which would end up blowing up in his face. Although Biden’s public pressure on NATO allies was less significant than Trumps, the American side still felt Europe could be holding up more of their end of the bargain.
Then Putin invaded Ukraine, and it was a general (no pun intended) feeling from the European side of the alliance that Europe should be holding up more of their end of the bargain.
Before even this though, Biden endorsed growing military spending through what is known as Military Keynsianism, which adapts the general philosophy of Keynsianism, i.e. boost your economic situation by spending on public projects like bridges, and power plants, to spending on bombs, and planes to carry the bombs, and ships to carry the planes.
It became a backbone of Biden’s economic Covid recovery program, Build Back Better. To further boost this spending, the October 7th terror attacks resulted in an Israeli assault on Gaza and the rest, as we know, is history. To an extent, Military Keynsianism became the new hotness for liberal-left governments. Kier Starmer’s Labour practises it in the UK, Olaf Scholz’s German SPD adopted it after Russia’s Ukraine invasion, and Emmanual Macron insists on it in France at the expense of seemingly every possible Prime Minister he could appoint. And let’s face it there have been a few.
So what has all of this massive spending meant for the big defence (or is it ‘war’) companies? Peter Thiel’s AI security, intelligence and defence firm Palantir has been the darling of the Military Industrial VC Complex. It’s been on the rise for the last half-decade or so, but just this October it soared to a $400 billion valuation, from $60 billion at the beginning of 2024. Thiel himself has become one of the 100 wealthiest people in the world focused on AI innovations for targeting and intelligence operations.
And like any good investment vehicle, they got in there fast and broke things, mostly the concept of protecting human rights.
Palantir is not swimming in money on their own though, General Dynamics, the guys who went viral for having really terrifying robot dogs, are now fitting out those dogs with military weapons and sending them out to the US-Mexico border. The good old names are there too, Lockheed Martin is now valued at more than $100 billion, but the big winner is RTX (formerly Raytheon) who are worth nearly $200 billion. Proving there’s nothing like adding ‘X’ to your name.
And it seems the hottest new startup craze is defence-tech with every VC and his cousin trying to get in on the game. Not surprisingly, drone-tech is in front of the queue, putting Ukraine startups at the top of the pile. This time, it’s a good pile though.
All this investment has transformed the nature of innovation in the defence industry. In one place in particular, innovation has done much to de-assymetrise an assymetrical conflict (try saying that after a couple): aka Ukraine’s battle plan against their much larger, better funded neighbour. In particular, Ukraine’s use of drone warfare is showing the potential for new weapons technologies to boost the smaller party - taking guerilla warfare 3.0 to astonishing new heights. Just two days ago a Ukraine strike on Russia’s oil fields took out power for 1 million people, and they are still dealing with fires today.
On top of this Ukraine is the first nation to create a separate military department of unmanned forces.
We should also note that one of the bigger stories about drones recently was Israel using them to attack a peaceful international naval convoy multiple times. From a crisis PR perspective there can be no better butt cover than “blaming the machines”.
Overall the Military Industrial complex has been the biggest boom in global markets outside of AI in the last 5 years, thanks to a changing global environment, and increasingly violent world. In spite of this, innovation and changing military patterns are clear to see, even if it’s not always in favour of the smallest power.
We have tried for long standing peace in recent decades, with a few bumps along the road. Perhaps now we should accept, with everything that comes with it, that it’s just better profit if you design a product governments are always going to need to replace! So all hail to a great new investment cycle for the renamed departments of WAR and the hot new defence(?) sector for US/Britain/Saudi Plc to invest their sovereign cash.
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