The DC Defense Tech BOOM
Joseph Brennan
Editor-in-Chief
There is a new kind of boom sweeping Washington, D.C. — not in real estate or politics, but in defense technology. From the Pentagon, to Arlington, to venture-capital-funded corridors, investors, engineers, and policymakers are pouring billions into what they see as the next huge national-security frontier: artificial intelligence, autonomous systems, quantum computing, and 5G-enabled battle networks.
Companies that had been software companies are now rebranding themselves as “dual-use” defense innovators, writes War on the Rocks. Startups that have not produced a single product to the Department of Defense are getting nine-figure valuations. And the city that was once burnished by contracts and committees is now burnished by pitch decks. But beneath the hype, there is an increasing caution that Washington is creating a defense-tech bubble that is going to pop at any given moment.
“Someone will lose a phenomenal amount of money,” OpenAI’s Sam Altman warned in August, cautioning that the artificial intelligence sector is becoming overheated. CNBC reports
who likened the present mania to the dot-com bubble of the early 2000s — a bubble so gigantic that even great technologies were unable to hold onto their valuations. His words were aimed at Silicon Valley, but they ring out loudly in the Capital. In Washington, the stakes are driven by government dollars and national-security necessity.
The Department of Defense’s Office of Strategic Capital has listed a collection of “critical technologies” that it believes are essential to the U.S. advantage, from high-end computing to next-generation communications. The Pentagon’s critical technologies list
sounds like an investment business plan. Venture capital companies that once avoided the slow-moving world of defense contracting are now racing to brand new startups that bridge commercial technology and military demand.
Heavyweights are cashing in on it. Lockheed Martin now markets its 5G abilities as the backbone for secure battlefield communications, a company at ease on both the defense and telecom sides of the fence. Its terminology reflects a broader tendency within legacy contractors, who are hurrying to be as responsive, agile, and software-oriented as the startups eroding their market share.
Meanwhile, a speculative mania has taken hold in the industry. PBS further notes
that investments in AI are driving economic growth. In D.C., that is a risk that is extending to defense technology, where valuations are as much about next-year’s possible promise of Pentagon contracts as they are today’s actual performance. Most startups are being pegged on the assumption that the U.S. government will be a guaranteed buyer — a perilous assumption given the glacial, bureaucratic nature of defense procurement and the political chaos of federal budgets.
The U.S. does face rising technological competition from China, Russia, and other competitors. Advanced AI, secure communications, and quantum-resistant networks can probably help to maintain deterrence. But that same geopolitical logic has also served as a convenient marketing slogan that is blurring the line between national strategy and business opportunity.
The problem with bubbles is not that they return nothing at all, but that they return too much in too short a time. The dot-com bubble, after all, left behind the infrastructure upon which the contemporary internet relies. The defense-tech bubble could do the same: although most of the startups in a bubble will fail, the survivors could transform how the Pentagon buys technology and war is waged. But the journey there will hurt. If funds are reduced, if publicity precedes delivery, or if some high-profile failure of a defense-AI deters public confidence, the air can quickly escape.
For now, Washington’s new industrial base hums with the arrogance of a market that believes it has history in its corner. Managers ring up deals to be inked, investors boast about valuations still to be realized, and policymakers speak innovation as if it were a matter of fate. The money just keeps flowing, and the bluster just keeps mounting. The only question is when gravity’s going to come back — and who is going to be left with the tab when it does.
Image courtesy of Getty Images.
