Al Root

A start-up is aiming to do to Lockheed Martin what Tesla did to Ford Motor. It might disrupt the entire defense business along the way.

Anduril, founded in 2017 and now valued at more than $30 billion, aims to become a prime defense contractor, building weapons systems using advanced, commercially available technology quickly and at scale, rather than bidding on cost-plus contracts for exquisitely designed, expensive, low-volume systems as traditional defense companies do. It seeks to put autonomy and software at the core of its products, as Tesla has done in upending the auto industry.

Anduril's "job is to compress the [defense] market," says Greg Martin, managing director at the private market exchange Rainmaker Securities. "Take the defense budget from $900 billion to $500 billion without losing lethality."

Those numbers are theoretical, but they highlight the goal of leveraging readily available technology and manufacturing processes to lower costs.

The Costa Mesa, Calif., company, established by tech billionaire Palmer Luckey, Brian Schimpf, Joseph Chen, Matt Grimm, and Trae Stephens, feels more like a tech start-up than a military contractor. The core of its technology is an artificial intelligence brain called Lattice, used in the company's drone-tracking Sentry tower, its Ghost reconnaissance drone, its Roadrunner interceptor drone, and the autonomous unmanned aircraft Fury, which can collaborate with manned fighter jets.

"On top of that, Lattice is being used to add autonomy capabilities to legacy platforms," Anduril's Executive Chairman Stephens tells Barron's.

A high school senior during the September 2001 terrorist attacks, Stephens started in the intelligence industry after college. A few years after that, he left to join Palantir Technologies. "We set off on this crazy journey to figure out to sell software to the DOD," he says. "Turns out [that is] really hard."

Palantir, which is currently valued at some $250 billion, managed to crack the code.

In 2013, Stephens joined the Founders Fund, the Silicon Valley venture capital fund co-founded by Peter Thiel, and was given the task of finding another Palantir or SpaceX. He didn't discover a slam-dunk winner, but he did find an opening in the market for weapons systems that leverage modern software.

The way he discusses software and its melding with hardware sounds more like remarks from Nvidia CEO Jensen Huang or Tesla CEO Elon Musk than commentary from a traditional defense company. That puts Anduril in competition with the largest technology companies. "The best software engineers in the world, the best hardware engineers in the world, they have options of where they can go at work," says Stephens. "If we can't win [that talent], we have no reason to exist."

Nor can Anduril meet the Defense Department's needs exclusively with software: It also has to make things. Vertically integrated large-scale manufacturing is part of its strategy. In January, the company said that Columbus, Ohio, will be the location of Arsenal-1, its first so-called hyperscale factory.

Vertical integration is great in theory but not easy for an upstart. Planes, bombs, and drones are complicated. "How many parts does it take to build an airplane," asks AeroDynamic Advisory managing director Richard Aboulafia. "All of them."

Managing its supply chain will be key to Anduril's growth, he says. Aerospace suppliers, for example, won't easily be able to double their engine production to make Anduril's collaborative combat aircraft, designed to fly alongside the Air Force's coming F-47 sixth-generation fighter jet.

"We have to make sure that we understand where our vulnerabilities are all the way down the raw materials...making sure we have multiple vendors for components," says Stephens. "We are [also] leveraging commercial technologies as broadly as we can...if you go back and you look at the Sentry tower project, almost everything is off the shelf."

Challenges aside, "It's fantastic to have new competition," says Aboulafia. "It's also fantastic they have access to so much investor cash."

The company has the money required to grow and has no plans to go public, Stephens says. It is benefiting from private markets' tendency to channel the lion's share of available finance to companies such as SpaceX and Anduril, which are seen as winners.

Anduril's current valuation of some $30 billion would put it at 280th place in the S&P 500 and not too far from L3Harris Technologies' $40 billion market value. But bids on the Rainmaker Securities exchange value the company closer to $35 billion, up from $14 billion a year ago.

Stephens sees opportunities to deliver more for less. "There's all this hardware that is commercially available, really cutting edge stuff, that you can leverage off the shelf," he says.

While Anduril might ultimately disrupt Lockheed's way of doing business, as Tesla did to General Motors and Ford Motor, it is still small. Total contract awards from the U.S. government amount to $1.1 billion, according to publicly available government databases. The comparable number for Lockheed is $750 billion.

Lockheed had no comment.

Gaps can close. For fiscal year 2024, Anduril won some $640 million in contract awards. Lockheed added $39 billion to its total.

Investors would be unwise to underweight Anduril's impact. The traditional space-launch industry slept on the threat from SpaceX for a lot longer than investors might assume.

A decade ago, the prevailing view was condescending. In 2015, at a hearing before Congress, SpaceX President Gwynne Shotwell was chided about how her company could afford to offer launches at a price below that of America's dominant commercial launch provider, ULA, the 50/50 joint venture between Boeing and Lockheed.

"It is hard for me to say," she replied. "I don't know how to build a $400 million rocket." SpaceX's way of doing business lowered launch costs so far below the prevailing industry standards that Shotwell couldn't imagine spending that much.

"At what point do you think ULA recognized that they were dead?" asks Stephens. "I think it was five years ago."

In 2020, SpaceX launched its Falcon 9 rocket 24 times, while ULA had six launches. In 2024, SpaceX launched Falcon 134 times, compared with five times for ULA. The joint venture didn't respond to a request for comment.

Lower costs didn't just make SpaceX a dominant launch provider. It is now the world's largest satellite operator, offering high-speed Wi-Fi service profitably to millions of global customers. No one could accurately predict what lower costs would mean in terms of new business opportunities.

Like SpaceX, what Anduril will become is hard to say. Successful defense "entrants ride waves of technologies," says Capital Alpha analyst Byron Callan. Anduril is riding the crest of a wave of software development that is allowing hardware to become autonomous. "It's placing a lot of different bets across a lot of different market segments...that's different than others."

Write to Al Root at allen.root@dowjones.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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April 28, 2025 01:30 ET (05:30 GMT)

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