Several major contractors expect to finish with increased revenues over last year, while newer companies have banked contract wins and momentum for the year ahead. The Pentagon’s redoubled efforts to buy weapons and tech faster—along with rising defense spending overseas—have buoyed the sector even as it worked to adapt to unpredictable U.S. defense funding, rapidly changing policies at the White House, and more. 

There’s no better example of defense tech’s marquee year, and the bumpy ride along the way, than rocket maker Firefly Aerospace. In the two months after the startup went public with a $9.8 billion valuation in August, a booster explosion trimmed 20 percent off the stock, the company won a key  $10 million NASA contract, and it settled a $855 million deal to buy SciTec, which holds Space Force missile tracking and warning contracts. 

“The planets are aligning between the Pentagon and NASA,” Jason Kim, Firefly’s CEO, told Defense One. “You're seeing funds go towards this national, important mission to the Moon,” where President Donald Trump has vowed to send U.S. astronauts by 2028. “Everybody is looking towards keeping America first, keeping America at the forefront, winning that Space Race.”

Firefly is planning to land its Blue Ghost lunar lander for the second time next year on the far side of the Moon—where China is already exploring. The company also wants to increase its capacity to four lunar landings a year. 

Kim also said the company aims to compete for work under the Trump administration’s massive Golden Dome initiative: rocket launchers, space-based orbiters, and sensors and data. 

“It's going to take all of us” in the space industry, he said. “The pie is going to grow, as we're seeing with Golden Dome and other opportunities in national security space. And there's going to be opportunities for all these companies—new space, non-traditionals, traditional space, traditional defense—all working together.” 

Welcome

You’ve reached the Defense Business Brief, where we dig into what the Pentagon buys, who they’re buying from, and why. Send along your tips, feedback, and best recommendations to lwilliams@defenseone.com. Check out the Defense Business Brief archive here, and tell your friends to subscribe! Our next issue will be posted on Jan. 7; happy holidays to all.

Back to “battleships.” President Donald Trump announced plans to build up to 25 giant surface combatants battleships on Monday during an event in Palm Beach, Fla. To start, the administration plans to engage some of the country’s military shipbuilders to get started on the first two “almost immediately,” Trump said, including on what is being called the USS Defiant—yes, like the Star Trek starship or, possibly, the Navy tug. 

Background: The announcement comes after the Navy unveiled plans for a new frigate after cancelling the existing program. The White House made it known earlier this year that shipbuilding was a key priority. 

But there are lingering questions as it’s unclear how production and, especially, workforce capacity will meet existing and new demands. Building battleships could not only prove to be very costly and require tremendous manpower, but large targets. 

Autonomy, autonomy everywhere. Naval autonomy startup HavocAI started the year wanting to build a 100-foot autonomous vessel. It did. Now, they aim to put their autonomy software on drones on more aerial and ground vehicles and have them work together.

Earlier this month, the company tested their software for Ukrainian defense officials, involving robot boats and small aerial drones that only used cameras as sensors, Paul Lwin, the company’s CEO told Defense One. 

“Once they found the target boat, they sent the information to UAVs, who came in to engage the target boat. Now, obviously, this is all staged…But what we're trying to show them was the technology and the process existed,” Lwin said. 

“That UAV was running our software,” he said. Next year, “we’re going to put our software on more UAVs, and then, even some ground vehicles in the future [to be] agnostic to the domain,” in addition to building bigger boats.

Next-generation collaboration. For help with the Army’s near $30 million Next Generation Command and Control prototype contract, Lockheed Martin pulled in Rune Technologies and other companies to handle AI-powered logistics software.

Logistics is “part of a broader ecosystem” that “interplays between intelligence systems and fire systems and other command and control systems and bi directional passing of data through an integrated data layer. We need to be able to plug and play those things,” David Tuttle, Rune’s CEO, told Defense One. 

The Army’s 25th Infantry Division in Hawaii is one of the units testing out the new kit. The next big test is expected to take place at the end of January, Tuttle said. 

“We just had the kickoff. We had a whole team out there in Hawaii last week with our partners…And I think everyone's all in like we're ready to get to work and ready to move fast. I think that's what the Army wants to see.” 

What I’m curious about: Next to buying 1 million small drones, next generation command and control systems are a major Army priority. The service has been trying to figure out what combination of devices soldiers can use now while developing what future warfare would require. It’s a complex process that involves a reliable network, data security, storage, and tools that make sense of the deluge of battle information. As experiments continue, it’ll be interesting to see how the final program takes shape—or changes. 

“Next week, I'm going to meet with the defense prime contractors. I'm going to meet with them here, [in] Florida, and we're going to be talking about production schedules because they're too slow,” President Donald Trump said Monday during a speech announcing plans to build a giant new surface combatant in the next three years. “We have many countries, allies that are wanting to buy. We make the greatest equipment in the world by far, nobody's even close, but they don't produce them fast enough. So, we're going to be meeting with them to talk about the production schedules. We're going to have strong production schedules. And the only way they're going to be able to do that is to build new plants.”

The short-notice summons is par for the course in 2025, which has been a lucrative yet bumpy ride for many defense companies. Policies have changed, and occasionally changed back, in rapid succession, from tariffs to federal personnel cuts that have slowed contracting, to shutdowns and, now, new shipbuilding demands on top of an already accumulating backlog. 

But, overall, it’s been a win with defense companies expecting higher returns. S&P's aerospace and defense index, which tracks select stocks, has risen 50 percent for the past year as of Dec. 22, which is good for investors.

There’s also been a lot of tough talk from defense officials, who have lambasted traditional defense contractors for sluggish supply chains, increased costs, and yearslong production delays. Newer defense entrants, on the other hand, have been uplifted and highlighted as the model for primes to emulate. 

So far, proposals to reform how the Pentagon buys everything from software to tanks have largely been welcome, though  some vendors have expressed reticence and concerns about how things will ultimately be implemented. 

“I think it's pretty positive. And, that's because, unfortunately, the world is more dangerous. So, when that's true, defense tends to do well,” Michael Brown, former head of the Pentagon’s Defense Innovation Unit, told Defense One.

That suggests more orders for prime defense contractors, especially now that Congress approved multiyear procurements for certain missile programs in the 2026 defense policy bill. But it’s also good news for defense tech companies. 

“There's also the recognition [that] we need the new technology too. We need what we're winning with in Ukraine. So that means a whole new set of vendors are going to be successful—the Shield AI’s, c3.AI’s. You're going to see the next wave, after SpaceX, Palantir and Anduril,” said Brown, who is a partner at the venture firm Shield Capital.

Eyes on allies

Defense companies expect increased defense budgets abroad, but continuing resolutions and the inability to start new programs at home—plus DOD’s rattled defense contracting staff—could present more immediate challenges. 

Higher demand for U.S. weapons from allies and partner nations could be promising for new and established defense companies, but politics could make things harder. 

“There’s a tremendous amount of money to be spent. And so there is a big opportunity for U.S. companies to be selling to allies. I'm not enthused about the fact that we make that more difficult with some of the political rhetoric,” Brown said, noting the White House’s recent National Security Strategy, which has been heavily criticized. 

“But there's a tremendous opportunity for American companies now and for us to see what the rest of the world is developing. I would love to see with the US and allies, more of a collaborative approach of ‘we're looking for technology in your cupboard, and you can look in our cupboards.’ And we make ITAR less restrictive. We go faster on foreign military sales, which has been addressed a bit with this transformation acquisition. But imagine a world where that was happening in a more frictionless environment. That would be better for everyone.”

Pressure to perform

Garrett Smith, an active Marine Corps officer and CEO of Reveal Technology, an AI company that develops biometric tech for operators, said 2026 will be the year that everyone performs. 

“Pressure is building to actually deliver. So, I think it's a healthy thing for the industry to have,” Smith said. “All of that pressure from private finance on the companies to actually deliver, and then the pressure from the journalistic crowd and from the customer…all that pressure on coal, it turns it into a diamond.” 

But could the momentum be curbed by ongoing budget woes given that the U.S. government has been operating under a continuing resolution for over a year?

There’s also still shutdown concerns even though the government is currently funded until the end of January. 

The government shutdown has a longer tail than people realize, Jackie Barbieri, CEO of Whitespace, a data and intelligence analysis company, told Defense One. 

While there was “immediate pain” for some companies, the shutdown’s effects could “reverberate over time. And I definitely think that will be the case in 2026 even if we don't have a CR,” Barbieri said. “Things are just a little bit slower than usual and so folks are having to change their calculus a bit.” 

Even beyond companies, those inside the Pentagon are waiting for budget dollars to start new projects but efforts are stalled until there’s full defense appropriations. But there’s upside, hopefully.

“That pent-up drive to move technology plans forward—we’re going to see some priority areas actually get addressed. And I think the number one thing I see from where we sit is that intelligence is going to move to the edge,” along with the use of agentic AI, she said. 

Smith also hopes to see more data solutions in troops’ hands. He cites the Army’s Soldier Born Mission Commander program. But he notes that the current continuing resolution hampers innovation. 

“CRs don't allow for new starts and if you claim to be doing innovative stuff, you need to start new programs. You need to start new things,” Smith said, noting that Congress was able to align program spending in fiscal 2025 with the president’s budget despite a full year of stopgap funding. 

“But also, there's a bit of a silver lining, where, if [your technology is] an actual priority for the Trump administration's view on what's important, now there's every chance in the world that your thing gets funded anyway. So, it's a strange time. Very, very strange time.”