For years, Silicon Valley told investors that software and artificial intelligence would reshape the global economy. Now, a new narrative is emerging in private markets: geopolitical instability itself may be becoming an investable growth sector.

The rapid rise of defense startups like Anduril Industries and Shield AI reflects more than enthusiasm for artificial intelligence or drones. Their soaring valuations come as countries ramp up military spending, tensions between the U.S. and China intensify, autonomous warfare becomes more common in conflicts like Ukraine and the Middle East, and investors increasingly see defense spending as a long-term growth trend rather than a cyclical government expense.

That raises an uncomfortable question few investors or founders openly discuss: How much of the modern defense-tech boom depends on persistent geopolitical fear?

The numbers are striking. According to data from S&P Global Market Intelligence, venture funding for defense-focused startups reached $29 billion in 2025, nearly triple the 2020 levels, while the number of venture transactions climbed from 414 in 2020 to 629 in 2024. The report noted the surge was due to "ongoing geopolitical volatility" and the war in Europe.

At the same time, global military expenditures hit $2.89 trillion in 2025, according to data cited by Reuters and the Stockholm International Peace Research Institute.

Investors appear to be treating that spending trajectory as durable. In March, Shield AI announced a $2 billion financing that valued the company at $12.7 billion, up sharply from a $5.3 billion valuation just a year earlier. The round included capital from Advent International, JPMorgan's Strategic Investment Group, and Blackstone-managed funds. 

Reuters reported that the company's autonomous-flight software had become integrated into platforms including F-16 fighter jets and the U.S. Air Force's Collaborative Combat Aircraft program.

Anduril's trajectory has been even more dramatic. The company roughly doubled its valuation to around $60 billion in 2026 while securing increasingly strategic Pentagon programs tied to autonomous systems, battlefield command software, and missile defense. 

The implicit market thesis behind these valuations appears increasingly clear: geopolitical fragmentation is no longer being treated as a temporary disruption. It is being priced as a durable operating environment.

Carlyle Group ( CG ) CEO Harvey Schwartz recently told an audience at the Bernstein Strategic Decisions Conference in New York that there are "unlimited investment opportunities in the defense sector," Reuters reported.

"Everywhere you go, everybody's increasing their defense budgets by 1%, 2%, 5%," Schwartz said, adding that he believes this is a "global phenomenon."

Carlyle is adding a new unit focused on aerospace, industrials, and defense, targeting deals in the $200–$300 million range. The investment firm's CEO noted that the firm is seeing many opportunities in the defense sector and has had to turn away businesses of a smaller ticket size. 

In the past, traditional aerospace and defense firms were often valued on slow-moving procurement cycles, predictable cash flow, and manufacturing capacity. Many newer defense startups, by contrast, are being financed with the language and multiples of frontier AI companies. 

Shield AI markets its Hivemind platform as an "AI-powered autonomy developer platform," while investors increasingly describe autonomy software as foundational infrastructure rather than niche military tooling. 

The result is a subtle but important financial transformation: national security risk itself may now be functioning as a venture capital growth catalyst. That raises a question few investors or founders publicly engage with — what happens to these valuations if geopolitical tensions stabilize?

Would investors still assign software-like multiples to autonomous defense companies if military spending growth slowed? Would late-stage capital remain as aggressive if conflict risk materially declined? Or has geopolitical anxiety itself become embedded in the pricing logic of defense AI?

That dependence doesn’t necessarily mean the companies are weak businesses. Many have real contracts, rapidly growing revenue, and strategically important technologies. But their valuations are also tied to a larger macro thesis — that global insecurity, military modernization, and AI-driven deterrence will remain defining features of the international order for the foreseeable future.