Anduril’s Trae Stephens says defense tech is headed for a shakeout

The Anduril co-founder warns that sky-high valuations, too much venture capital, and unrealistic expectations could drive much of the industry into collapse.

Trae Stephens is adamant that you can’t be boring and innovate. What he means is that people who refuse to take positions on anything are, in his view, definitionally incapable of building whatever comes next. 

This ethos also happens to be how Stephens operates.

The Anduril co-founder and executive chairman—and Founders Fund partner—became invested in foreign policy following 9/11. He found his way into Georgetown’s School of Foreign Service, joined a U.S. intelligence agency after graduation, watched the pitfalls of bureaucracy fail, and left. Stephens joined Palantir early, then Founders Fund, then spent three years looking for a defense tech company worth backing but couldn’t find one. So in 2017, he built Anduril instead.

That bet is now a defense behemoth: $2 billion-plus in 2025 revenue (up 110% year-over-year), a $20 billion Army counter-drone contract, a five-million-square-foot drone factory in Ohio, and a $5 billion Series H last month at a $61 billion valuation, doubling the company’s worth in under a year.

But, his view from the top of the defense sector isn’t, it turns out, especially bullish. Virtually every mid-stage defense tech company, Stephens told me, trades at “50, 100, 200x multiples” while the underlying defense industry trades at 2 to 2.5x revenue. “It’s completely disconnected from reality.” Founders won’t accept acquisition at a discount to their last round—”there’s too much ego”—so most will simply be driven into the ground. “That’s not good long-term for the ecosystem.” 

He’s careful to credit the government for its part. “They have learned a lot in the last 10 years,” he said—pointing specifically to Other Transaction Authority agreements, which let the DoD bypass traditional procurement regulations to move faster with nontraditional contractors, and the Office of Strategic Capital, which is now seeking more than $20 billion in its FY2027 budget request. 

His critique is that venture capital is pricing the defense opportunity as if there will be 20 Andurils. Defense tech equity funding hit $17.9 billion in 2025, more than doubling year-over-year, and 2026 is already on pace to shatter that. The problem isn’t investment. It’s pricing. “There will be a couple of new credible players,” he said. “The rest is noise.”

See you tomorrow,

Lily Mae Lazarus
X: @LilyMaeLazarus
Email: lily.lazarus@fortune.com
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This story was originally featured on Fortune.com