The very notion of what it means to defend a nation is rapidly evolving, and capital is following. For much of the period since the Cold War ended in 1991, defense was a contained line item. Spending rose in absolute terms, ticking up after 2001 as counter-terrorism efforts expanded, but relative to GDP it remained muted versus Cold War levels.1
The era of reduced spending is over. What has replaced it is not simply a larger defense budget; it is a broadening of the security perimeter itself. Traditional defense has given way to a wider mandate, encompassing cybersecurity, energy independence, supply chain resilience, defense technology and space. Two forces are driving the shift: a fragmenting geopolitical order that turns dependencies into vulnerabilities, and the rising prominence of AI as this generation's defining contest for global leadership. AI simultaneously accelerates threats, reshapes how nations respond, and makes securing its own value chain (from energy to chips to data infrastructure) a matter of national security in its own right.
The result is what we call the "resilience premium"— a sustained commitment by governments and private capital to harden the systems on which modern economies depend. The central investment question is where capital will concentrate as urgency meets industrial scarcity—and who can address these bottlenecks reliably and at scale.
A growing part of the answer lies outside public markets. Case in point: the median tech company is going public later and at a larger size than in the Internet era2, meaning the high-growth phase of category-defining businesses is increasingly occurring prior to IPO. Private markets will play a pivotal role across this new security mandate, though each pillar maps to a distinct playbook and asset class.
This piece lays out the two structural forces driving this evolution, the four security pillars where capital is organizing (defense and autonomous technology, space tech, energy independence, and supply chain resilience and advanced manufacturing), how private markets provide access to the most dynamic part of the ecosystem, and the risks that discipline must account for.
Defense spending goes through cycles, but two structural forces explain why this shift will prove more durable than past buildups.
The first is geopolitical fragmentation: a shift toward a multipolar world in which international rivalries are persistent and vulnerabilities more prevalent. In a fragmented system, dependencies become pressure points. Energy supply can be disrupted or coerced, and logistics chokepoints become leverage, as the conflict in the Middle East and disruption to shipping through the Strait of Hormuz make clear.
The practical consequences of competing power centers, regional conflicts and the breakdown of security alliances are pushing governments to allocate capital toward resilience and redundancy with increasing urgency.
The second is the acceleration of artificial intelligence and broader technological disruption, which is redefining modern warfare. Precision is arguably being democratized: legacy systems relied on the assumption that superior technology, expressed through exquisite platforms, would be sufficient to maintain strategic superiority. That assumption is eroding. In a world where precision is cheap, scale becomes vital again, and autonomous systems are now low-cost and scalable enough to challenge legacy platforms, forcing continuous adaptation. Precision also reshapes the politics of security, influencing how and when force is authorized, particularly for democracies facing accountability constraints.
Beyond the battlefield, AI has emerged as this generation's defining contest for influence on the world stage, as breakthroughs in cybersecurity, coding, and services automation have made its transformative impact increasingly difficult to dispute. Its demands strain power grids and expand the cyberattack surface. Securing the end-to-end value chain is now a matter of national security, elevating energy supply, chip manufacturing, and cybersecurity from policy proposals to strategic priorities.
Together, these forces are pushing states to prioritize reliable access over cost efficiency alone, a shift from globalization and the “peace dividend” to what we call the “resilience premium.” The response is already underway: governments are increasing spending and venture capital deal value reached $50 billion in 2025, a record.3
A quick history lesson: Silicon Valley itself was born from defense-funded research. In 1955, defense-related contracts made up ~85% of the region’s total revenue4, and firms like Fairchild Semiconductor and its spinoffs — including Intel — grew on the back of government demand. More broadly, strategic industrial firms were once woven into the fabric of the everyday U.S. economy. Chrysler built both guided missile systems and minivans; Ford built cars and satellites.
After the Cold War, the number of primary defense contractors (“primes”) reduced substantially and the remaining primes could deliver top-tier capability, but at high cost and on slow timelines. Cost-plus, build-to-spec contracting was optimized for peak performance on individual platforms rather than scalable, affordable output. Consolidation, outsourced manufacturing, and dependence on government contracts eroded their ability to innovate.
Russia's invasion of Ukraine has fundamentally reset how governments think about defense. Militaries are now prioritizing speed, affordability, and the ability to sustain prolonged combat — accelerating investment in AI-enabled software, drones, and autonomous systems. The economic asymmetry is stark: low-cost offensive drones versus high-cost defensive intercepts are driving demand for high-volume, low-cost expendable systems (cheap enough to lose, but numerous enough to overwhelm) and scalable counter-drone capabilities. This need drove VC investment in autonomous systems up 143% in 2025, making it the leading defense-tech subsector by deal value.
Some barriers to competition have eased. Software-defined systems lower development costs, and commercial AI and cloud infrastructure transfer readily into defense. For years, much of the commercial technology ecosystem avoided defense work entirely — ironic, given its origins — but that stance is shifting as governments increasingly seek proven commercial partners5. The result is a market that is splitting in two rather than flipping entirely: newer entrants can develop products faster and more cheaply than legacy primes weighed down by overhead and slow procurement cycles. But primes should retain an edge in the most complex, long-term programs (i.e. those requiring classified integration, large-scale systems engineering).
The investment opportunity favors companies that can deliver battlefield-proven products across multiple militaries, scale manufacturing when demand rises, demonstrate resilience to cyberattacks and jamming, and deliver continuous software-led improvement without ballooning costs. They will also need talent depth and the ability to navigate bureaucratic processes like procurement.
Our playbook: Venture and growth equity for emerging autonomous systems, sensors, software platforms, and tech-enabled manufacturing of next-generation defense systems; private equity for scaled defense services, next-generation integration at established defense companies, and manufacturers of critical components.
Commercial businesses were a small part of the space economy until reusable launch economics and scaled constellations6 lowered costs and made it possible to launch more rockets and satellites. Space-based communications, navigation and intelligence are becoming economically embedded and strategically important, so countries are increasingly treating space as contested infrastructure. This elevates the premium on resilience, redundancy and rapid replenishment.
In the Ukraine conflict, disruption of satellite networks demonstrated that space-based communication, sensing and precision timing are now foundational to coordination, intelligence and decision-making. This underpins long-term government commitments, and those commitments are global. McKinsey projects that space economy spending will reach $1.8 trillion by 2035.7 The space economy, in our view, is a commercially driven market with a government demand floor beneath it.
We are still in the early innings, and over time we expect investment opportunities will extend beyond launch providers into companies that build enabling infrastructure and software that converts space-derived data into operational decisions, where differentiation depends on scalability, reliability, and the total cost of building, operating, and replenishing systems over their lifetime. Companies will stand out if their services can be used in both civilian and military applications and if they have a balanced customer mix that reduces their dependence on a single buyer.
In-space infrastructure — such as anti-collision and satellite servicing — is a particularly compelling near-term opportunity, as it enables the broader space economy without requiring a bet on which specific applications will dominate. Looking further ahead, emerging concepts like orbital data centers and space-based solar generation (the latter estimated to produce roughly 5x the power of ground-based panels given the absence of atmospheric interference and seasonality8) may expand the investable universe further over time.
Our playbook: Early-stage private investment for enabling software layers, emerging constellation operators, advanced satellite manufacturing and in-orbit services; select physical infrastructure assets—ground stations, launch support facilities—with long-term contracts.
Energy markets are being reshaped by demand growth (particularly from data centers and the electrification of industry), aging infrastructure, tighter reserve margins, and geopolitical fragmentation. The US alone could face a power deficit as early as 20299 as demand accelerates and some coal and nuclear capacity retires; a gap widened by AI energy demands, where reliable power is a prerequisite for maintaining strategic advantage. As grids digitize, cybersecurity becomes a core reliability requirement. The result is a multi-year, multi-geography investment cycle spanning transmission expansion, storage, and generation capacity — increasingly framed as continuity-of-economy spending rather than discretionary capex.
Decades of global underinvestment in transmission and electric grids have created a $550 billion-plus opportunity, as public utility balance sheets cannot fund this transformation alone. This offers investors long-duration, regulated or contracted cash flows. Midstream energy assets are also well-positioned as natural gas demand grows and LNG trade expands across Asia, Europe, and emerging importers.
Despite this supportive environment, discipline is required as not all sources of energy and power supply are created equal. Nuclear facilities take a long time to develop and have a history of cost overruns. Gas generation valuations could compress as new capacity comes online. Longer term, AI-driven efficiency gains in chips and power consumption could compress data center demand growth, so it warrants watching closely.
Renewable energy, despite political pressures in some regions, remains viable for experienced managers underwriting without subsidy assumptions, with a preference for currently-operating assets over development risk.
Our playbook: Infrastructure strategies for regulated or contracted grid assets — generation, transmission, storage; venture and growth equity for grid software, cybersecurity, and next-generation storage technologies; private equity for energy efficiency and management systems and energy services.
For decades, manufacturing logic prioritized cost efficiency above all else — offshoring production, thinning inventories, and concentrating capacity in low-cost geographies. When the pandemic and geopolitical tensions exposed the fragility of these supply chains, governments recognized that critical capabilities had been ceded to concentrated, geopolitically exposed sources of supply. The deeper cost was structural: when you cede manufacturing, you lose the feedback loop between production and innovation that drives technological improvement.
The response is now global. TSMC announced a $165 billion expansion in Arizona last year. The EU's proposed Industrial Accelerator Act would set local content requirements across segments like batteries, solar/wind technologies, and heat pumps. In Asia, countries from Japan to Vietnam to Singapore are building new fabrication capacity to diversify supply. A similar dynamic is playing out in drones, where Western governments are seeking alternatives to Chinese-dominated supply chains. As AI accelerates demand for advanced chips and precision manufacturing, the countries and companies that control production will shape the next generation of technological leadership. Not all re-shoring ambitions are equally achievable, however — in some industries, the more realistic path runs through new allied partnerships that leverage comparative advantage rather than rebuilding from scratch domestically.
The companies best positioned to benefit are those that can reliably manufacture at scale, lock in key supplies, and consistently meet quality and security standards. The main risks are policy changes, higher costs compared to overseas production, and shortages of equipment, workers, and specialized materials. Signs of staying power include steady production growth, multiple supply sources, manufacturing flexibility, and long-term contracts that provide revenue visibility.
Our playbook: Private equity for scaling manufacturers with secured contracts and certification barriers; industrial real assets for large-scale factory and facility construction; venture and growth equity for advanced tooling, automation, and verification/inspection companies.
To learn more about how you can add investments in the Security theme to your portfolio in a way that serves your needs and risk tolerance, contact your J.P. Morgan team.
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