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Europe has spent years rebuilding its military in response to Russia’s invasion of Ukraine. Investment is now increasingly centered around one technology that is seen as central to the continent’s future security: drones.
A series of announcements over the past two weeks shows how quickly that change is accelerating. NATO announced a new drone initiative, the UK allocated billions of pounds for drones and counter-drone systems, Germany moved to buy 50,000 drones for Ukraine and defense technology startup Hellsing secured an $18 billion valuation.
This development reflects a broader shift in military planning, with unmanned aerial vehicles and autonomous systems moving from niche battlefield tools to a core part of modern warfare. This trend presents opportunities not only for drone manufacturers but also for companies developing AI, software, electronic warfare, and secure communications.
“Future defenses are moving toward a multi-layered battlefield, where tanks, for example, don’t just fire artillery shells, they launch drones, receive real-time targeting data from satellites and[unmanned aerial vehicles]share information across the battlefield, and operate as part of a networked force,” Morningstar analyst Loredana Muharemi told CNBC.
Ukraine’s battlefield lessons, paralleling Iran’s use of low-cost Shahed drones in the Middle East, demonstrate the importance of relatively inexpensive AI-equipped drones that can gather intelligence, extend the range of conventional weapons, and operate increasingly autonomously.
How are drones used in modern warfare?
These battlefield lessons are now reshaping procurement decisions across Europe.
Last week, NATO Secretary-General Mark Rutte announced the Drone Initiative, which would see the allies invest more than $40 billion in counter-drone capabilities over the next five years, and said the military alliance would become “drone-enabled.”
Rutte said drones had “fundamentally changed” the character of modern warfare and had become a “decisive factor” on the battlefield, citing the Russia-Ukraine war as an example.
The UK is also investing heavily in self-driving systems. Under the Defense Investment Plan announced at the end of June, the government has committed 5 billion pounds ($6.7 billion) to the UK Drone Transformation program, which aims to strengthen the country’s armed forces.
Meanwhile, Germany is increasing its aid to Ukraine. On Monday, defense software company Auterion and Ukrainian drone maker Skyfall announced a €90 million order from a European NATO member state for 50,000 drones powered by Auterion’s operating system. Sources confirmed to CNBC that the country is Germany.
“This is the first war that took place at a time when drones were sufficiently widespread and drones were starting to play a role,” Orterion CEO Lorenz Meyer told CNBC.
According to Meyer, software is increasingly defining the battlefield.
Auterion’s operating system allows drones to continue attacking targets despite electronic jamming, making them even more effective in conflict environments. “This allows us to fly into targets that we would have previously missed due to loss of video signal, even if the target has a jammer installed,” Meyer said.
It also allows the drone to attack targets below the radio horizon, such as when descending into a valley. The company plans to deploy software that will allow operators to coordinate and control swarms of drones, rather than flying each aircraft individually.
July 6, 2026, in Omsk, Russia, fire at Omsk oil refinery, which the region’s governor said was attacked by Ukrainian drones. This photo was taken from a social media video.
Reuters
Although the latest order is for Ukraine, Meyer said the technology has already attracted interest from militaries including Germany, Norway, the United Kingdom and France.
Low-cost drones are increasingly being combined with sophisticated weapons to increase effectiveness by disrupting or overwhelming enemy air defenses.
Beyond drone manufacturers
Muharemi said the growing use of drones and other autonomous systems is also increasing demand for the technology needed to coordinate drones in real time. This includes secure communications, battle management software, AI, satellite-based intelligence, sensors, and electronic warfare systems.
“As a result, companies with physical platform scale and autonomy, exposure across air defense, sensors, electronic warfare, software, and space are likely to capture a share of future defense spending,” he said.
According to McKinsey, Europe’s core defense spending has doubled since 2019 and could reach around 800 billion euros (about 2.9% of GDP) by 2030 under NATO’s 3.5% target by 2035.
Venture capital investment in defense technology also accelerated sharply on both sides of the Atlantic in 2025. Deal values more than doubled year-on-year, with European defense technology funding increasing from around €200 million in 2021 to €2.6 billion in 2025, according to McKinsey.
The biggest beneficiary was Munich-based Hellsing. The company on Monday announced a funding round valued at $18 billion, solidifying its position as one of Europe’s most-funded defense technology startups.
Hellsing makes drones and underwater surveillance weapons, and builds AI and autonomous software to power these military applications, underscoring how Europe’s defense industry is increasingly betting that the future of warfare will rely not just on traditional military hardware but on software and autonomy.
