Iran war is an opportunity for defense technology to shine, but few systems are ready.

The Iran war is redefining modern warfare for the United States and increasing demand for low-cost technology.

This is the exact situation Secretary of Defense Pete Hegseth warned about months ago.

“We can’t afford to shoot down a cheap drone with a $2 million missile,” Hegseth said in December. “And we ourselves must be able to field a large fleet of capable attack drones.”

In the first two days of the war, the United States reportedly used up $5.6 billion in military supplies. Meanwhile, Iran wreaked havoc on military bases, tourist centers and data centers used by America’s biggest tech giants with swarms of low-cost Shahid drones, costing between $20,000 and $50,000, according to official estimates.

This is the moment defense technology and Silicon Valley have been waiting for.

Defense technology companies have been fighting for years to prove themselves in Washington and win a slice of the ballooning Pentagon budget snatched away by the next defense prime minister. lockheed martin, RTX and Northrop Grumman.

This war, combined with President Donald Trump’s efforts to reindustrialize the military, could provide the long-awaited trigger.

“The world is becoming more dangerous,” said Mike Brown, a partner at Shield Capital. “Technologies that were in the conceptual stages 10 years ago are now proving themselves on the battlefield.”

The United States has deployed its own version of Shahid, called the Low-Cost Unmanned Combat Attack System (LUCAS), to Iran. The drones, manufactured by Arizona-based Speckleworks, cost about $35,000 each, according to industry estimates.

The Department of Defense is also reportedly making additional purchases.

Tara Murphy-Doherty, CEO of defense software startup Govini, said LUCAS is one of the only major new systems to emerge from the Iran war, but production will be modest. Most of the U.S. air capabilities in Iran came from conventional fighters and bombers.

With counter drone technology, aviation environment This week we announced the Locust X3 laser system. The company claims the system costs less than $5 per shot. Contractors Lockheed Martin, RTX, and Leidos We also provide solutions.

taser manufacturer axon entered the space in 2024 with the acquisition of Dedrone. Startups Anduril and Epirus are also expanding their anti-drone warfare capabilities.

Despite their practical applications, these tools account for only $4.7 billion of the fiscal year 2026 budget. That’s according to data from Obviant, an intelligence startup focused on defense procurement, contracting, and budgeting data.

“America is built on competition, so let’s be competitive,” said Brett Velicovich, co-founder of Powers, a drone company backed by President Trump’s sons. “Let the companies with the best technology win, because it can only be good for our country.”

Major winners in defense technology so far include Oculus developer Palmer Lackey’s Anduril and software AI companies. Palantir. Both recently signed multibillion-dollar cap contracts with the Department of Defense.

Palantir’s tools are already deeply embedded in the Department of Defense, with CEO Alex Karp alluding to the fact that the US and its allies in the Middle East are using the company’s Maven platform.

The sector has soared in popularity in Silicon Valley, with deal value nearly doubling from $27.3 billion in 2024 to $49.9 billion last year, according to data from PitchBook.

Despite the excitement, less than 1% of contract value was spent on the sector in 2025, according to data from the Ronald Reagan Presidential Foundation and Research Institute. Anduril, Palantir and Elon Musk’s SpaceX account for 88% of that.

Efforts to improve the military’s technological capabilities began well before the Iran war, and President Trump issued a series of executive orders early in his first term that ramped up efforts to rebuild aging military systems.

President Trump’s signature $185 billion “Golden Dome” missile defense system will also provide new opportunities for startups such as shipbuilding and drone companies.

Several defense technology startups CNBC spoke to for this story said they have seen a surge in demand from Pentagon customers since the United States and Israel first attacked Iran in late February. Companies say many of these customers are offering to buy production capacity or asking companies to expand production.

“There are very clear demand signals coming from the current administration and the Department of Defense,” said Ryan Tseng, president and co-founder of Shield AI, which was valued at $12.7 billion this week. “People are more prepared than ever.”

Understanding demand is a challenge for any company, but it’s especially important for companies that rely on venture capital to keep their factories running. At the same time, the government has not provided enough stable contract flow for some of these businesses to streamline scaling up.

As a result, defense technology companies are divided on whether to win deals and risk profitability to increase production capacity, or postpone and potentially miss out on opportunities.

John Tenet, CEO of radar and communications technology maker Chaos Industries, said his company’s manufacturing teams are working day and night to respond to customer demand signals. The company recently raised $510 million at a valuation of $4.5 billion.

“If we are waiting for a contract to scale up production, it is already too late,” he said.

Many of these businesses are already operating faster than usual.

One counter-drone startup, which requested anonymity due to the nature of its work with the government, told CNBC that it plans to double the number of systems created since the company first launched the tool this year.

The company said all of these systems have been sold to customers and it will only increase capacity if it receives a contract from the U.S. government.

That’s the difficult part of working with governments.

Demand seems insatiable, but some defense companies told CNBC they want contracts before spending big on new systems. This is even more important for companies building multi-million dollar tools with complex supply chains.

Companies may stockpile to get ahead of demand, but rapid innovation could quickly overtake their technology. So focusing on a single product is a “very dangerous game,” said Ben Quazzo, an Accel partner.

“If you wake up one day and it’s outdated, your business is in trouble,” Quazzo said.

The Pentagon plans to pour billions of dollars into defense technology over the next few years, with President Trump calling for a military budget of $1.5 trillion in 2027. But a budget controlled by Congress with limited long-term prospects, combined with a slow contracting process hampered by bureaucracy, creates some obstacles.

“The Department of Defense is the only company in the world that is bound by procurement and sales rules created by others,” said Morgan Plummer, vice president of policy development and implementation at Americans for Responsible Innovation.

Experts said that even as tech companies ramp up production, few of these tools actually reach overseas battlefields and the scale of production is too small to have a significant impact.

Hegseth acknowledged the cost difference between drones and missiles and called on the industry to build 300,000 drones “quickly and cheaply.”

The initiative will deliver “hundreds of thousands of units by 2027,” Hegseth said.

A few weeks after the first phase of the plan was launched, the Iran War began.