Defense tech is the theme I think is most misunderstood by retail investors. The reflex is to picture tanks, jets, and slow-moving prime contractors trading on geopolitics. The reality underneath the headlines is a structural, multi-year re-architecting of how nations build and buy military capability — a shift from exquisite, decades-long hardware programs toward software, autonomy, space, and attritable systems. That shift is creating a new category of company and reshaping the old one. This is how I think about the whole space through the Ovatek Lens.
Thematic piece. Company names below are illustrative examples of categories, not recommendations. Figures are illustrative. Not advice.
Why the buildout is structural, not a headline
Three forces are compounding at once. First, geopolitics: sustained great-power competition and regional conflict have ended the “peace dividend” era of flat or shrinking budgets across the Western alliance. Second, doctrine: recent conflicts have shown that cheap drones, software-defined systems, and space-based ISR (intelligence, surveillance, reconnaissance) can blunt hugely expensive legacy platforms — which forces a rethink of what to buy. Third, procurement reform: militaries are (slowly) opening the door to commercial-speed software vendors and new manufacturers, not just the handful of legacy primes. None of these is a one-quarter story. Budgets, alliances, and doctrine turn over years — which is exactly the multi-year runway I want under a theme.
Western defense spending has re-inflected after decades of restraint
Illustrative. NATO members lifting spending toward and beyond old targets, plus supplemental funding, create a rising tide. But a rising tide isn’t a thesis — where the money flows matters more than the total.
The shift that actually matters: steel to code
The single most important idea in this theme is that the composition of defense spending is changing faster than the total. Dollars are migrating from a small number of enormous, multi-decade hardware programs toward software, autonomy, uncrewed systems, space, and “attritable” assets — things cheap enough to lose. This is where the new-entrant defense-tech companies are attacking, and where the economics look more like software (high margin, recurring, scalable) than traditional cost-plus manufacturing. It’s also where the primes are least advantaged, because their entire operating model was built for the old paradigm.
Illustrative relative growth by category. My interest concentrates at the top of this chart — the software-like, high-growth layers, not the slow-growing legacy base.
Two ways to play it — and the tradeoff
There are two broad camps, and they have opposite risk profiles. The primes (large legacy contractors) offer stability, dividends, and huge backlogs, but slower growth and structural exposure to the old model that’s being disrupted. The disruptors (software-first and new-manufacturing defense-tech companies) offer far higher growth and the software-like economics I prefer — but with higher valuations, program-timing risk, and dependence on winning contracts against entrenched incumbents. Applying the Lens, I’m drawn to the disruptor side, because that’s where founder-operators, defensible software moats, and asymmetry live — but I respect that it’s the higher-variance path.
| Category | Example type | Profile | Lens fit |
|---|---|---|---|
| Software / data / autonomy | Software-first defense | High growth, high margin | Strong |
| Space & ISR | Launch + satellites | Growth + optionality | Strong |
| Uncrewed / drones | New manufacturers | Fast, contract-driven | Selective |
| Legacy primes | Diversified contractors | Stable, slower | Ballast only |
Illustrative categorization, not recommendations. The green rows are where my process points — software-like economics inside a structural wave.
How the Ovatek Lens filters the theme
A theme is not a thesis, so I run defense-tech candidates through the same six pillars as everything else:
- Operators I’d back as owners — I favor founder-led defense-tech companies with real skin in the game over sprawling contractors run for the quarter.
- Primary research — I read the contract structure. Is it recurring software, or one-off cost-plus? Is the backlog real and funded, or a press-release MOU?
- Real wave + defensible seat — the wave is clear; the seat has to be defensible via software, data, mission integration, or manufacturing scale, not just a government relationship.
- The cost curve / economics — I want software-like margins that improve with scale, not manufacturing that’s only profitable at the government’s mercy.
- Asymmetry — large, mispriced upside from a doctrine shift against bounded downside, with speculative sizing for the earliest-stage names.
- Discipline after the buy — defense stocks can spike on headlines; I scale in on structural conviction, not on the news cycle.
The risks I refuse to hand-wave
Why the theme wins
- Structural, multi-year budget increases across the Western alliance.
- Doctrine shift toward software, autonomy, space, and attritable systems.
- Procurement reform opening the door to commercial-speed vendors.
- Software-like economics in the fastest-growing layers.
What could break it
- Budget politics — appropriations delays, continuing resolutions, priority shifts.
- Program timing — contracts slip, and revenue with them.
- Incumbent capture — primes co-opt the new categories.
- Valuation — the “defense tech” label can attract hype pricing.
How I’m positioned — and what I’m watching
Stance: Bullish on the theme; selective on the names. I want exposure to the software, autonomy, and space layers where the economics and growth are best, sized according to how proven each business is — conviction sizing for profitable operators, speculative sizing for the early-stage disruptors. The signals I track: the composition of budget growth (is money actually flowing to the new categories?), contract awards to disruptors vs primes, and whether the software-first players are converting pilots into recurring, funded programs of record.
The bottom line
Defense tech is a real, structural wave with a long runway — but the money and the moats are migrating from steel to code faster than the headlines suggest. My job isn’t to bet on “defense goes up.” It’s to find the founder-operators building defensible, software-like businesses inside that shift, size them by how proven they are, and hold through the headline noise. Process over predictions — even when the theme is loud.