The U.S. military deployed armed sea drones in combat for the first time on Sunday night, striking a submarine and ship maintenance facility in Iran. The operation utilized three 24-foot Corsair drones, manufactured by Texas-based Saronic Technologies, a start-up founded in 2022 by a former Navy SEAL. This marks a significant development in the evolving nature of warfare, highlighting the increasing role of private defence technology firms and emerging AI capabilities on modern battlefields.

Experts describe the ongoing conflict in Ukraine as the “first AI war” and the first to employ drone technology on a large scale, with AI-enhanced drones and software proving pivotal in Kyiv’s defence against Russian forces. This shift towards advanced technology is attracting substantial investment, with major financial institutions and private capital actively positioning to support and benefit from changes in defence strategy and manufacturing.

JPMorgan Chase recently unveiled a $1.5 trillion initiative aimed at financing and investing in U.S. sectors critical to national security and economic resilience over the next decade. These include supply chains, advanced manufacturing, defence and aerospace, energy independence, and strategic technologies. The bank plans to invest up to $10 billion directly in national security companies. JPMorgan’s CEO, Jamie Dimon, has highlighted growing geopolitical uncertainties following Israel’s conflict with Hamas and Russia’s invasion of Ukraine, emphasizing the risks associated with U.S. dependence on unreliable sources for critical minerals, products, and manufacturing.

Venture capital funding for U.S. defence firms surged last year to $14.2 billion, nearly tripling from the previous year, according to industry data. The Department of Defense has revised its procurement strategies to support start-ups backed by venture capital that are advancing AI software, hypersonics, and drone technologies. Michael Duffey, under-secretary of war for acquisition and sustainment, acknowledged the need for greater speed and flexibility in adopting innovations developed outside traditional Pentagon channels, aiming to reduce friction in acquiring new technologies for frontline troops.

Emil Michael, under-secretary of war for research and engineering and a former Uber executive, is working to encourage new entrants into the defence sector by streamlining contract processes and testing procedures to accelerate development cycles and feedback loops. However, traditional defence contractors face challenges with faster development timelines, fixed-price contracts, and increasing capital demands, according to Wells Fargo analyst David Strauss.

The recent conflict involving the U.S., Israel, and Iran has been accompanied by a decline in shares of established defence primes such as Lockheed Martin and Boeing. Strauss likened the current environment to the post-9/11 era of heightened threats and budget growth, but noted key differences, including a higher baseline for defence spending, increased competition from commercial firms, and a more strained overall budget outlook amid growing deficits.

The push to reindustrialize and reshoring critical supply chains, particularly in semiconductors, is a focus of U.S. policy amid concerns about reliance on Taiwan and the potential for conflict with China. Chinese President Xi Jinping emphasized Taiwan’s centrality to Sino-American relations in a May meeting, warning that mishandling the issue could lead to clashes jeopardizing the broader relationship.

Policymakers have sought to involve manufacturers outside traditional defence sectors to replenish U.S. stockpiles strained by ongoing conflicts in Ukraine and Iran. Shyam Sankar, chief technology officer at Palantir Technologies, has warned that the U.S. could deplete critical munitions within a week in a major conflict, highlighting ongoing challenges in modernizing strategic nuclear forces and the vulnerabilities of supply chains dependent on China.

At a recent Pennsylvania Defense and Innovation Summit, Senator Dave McCormick expressed concern about America’s military readiness, contrasting past shipbuilding capabilities with China’s current production of roughly 1,000 vessels annually. The summit, featuring prominent speakers including former President Donald Trump and industry leaders like Jamie Dimon and Blackstone’s Jon Gray, underscored the growing intersection of geopolitical tensions, artificial intelligence, and defence industry transformation.

As geopolitical dynamics and technological advances reshape global defence, private sector innovation, venture capital investment, and Wall Street financing are converging to redefine the future of military capabilities and industrial capacity.