In an era of escalating geopolitical tensions – from the ongoing war in Ukraine to rising concerns in the Indo-Pacific – defense technology has surged into the spotlight of investors. While AI dominates tech headlines, a parallel growth story in 2025 is emerging around “dual-use” innovations: technologies with both military and civilian applications. This framing emphasises commercial potential alongside military utility. Yet as capital flows in the sector, questions arise about how authentically “dual” many of these technologies truly are.
How we got here
Global instability has transformed defence from a politically sensitive sector into a growth market. The US is pushing to re-industrialise its defence industrial base, while Europe has mobilised to strengthen security amid the Russia–Ukraine war, elevating defence priorities worldwide. Non-Western players, such as China's massive dual-use investments and Israel's thriving defence export ecosystem, further intensify the competitive landscape.
For years, investors largely steered clear of defense: too complex, too regulated, too reputationally risky. That mentality shifted when returns improved. In public markets, defense equities have delivered outsized gains since 2022. For instance, the Morningstar Developed Markets Europe Aerospace & Defense Index surged 267% since January 2022, outperforming broader markets. In the U.S., the iShares U.S. Aerospace & Defense ETF (ITA) returned 9.95% in 2022, 14.27% in 2023, and 15.80% in 2024, with continued strength into 2025.
As shown in the chart below from Reuters, a handful of major defence stocks have recorded substantial gains since the start of the Russia–Ukraine conflict.
A handful of major defense stocks have recorded substantial gains since the start of the Russia–Ukraine conflict. (Source: Reuters)
In private markets, the momentum mirrors this trend. European defense startups raised over , while NATO countries collectively deployed over into defense startups by mid-2025. NATO's own commitments, including the €1 billion+ NATO Innovation Fund and the Defence Innovation Accelerator (DIANA), underscore this shift. At the 2025 NATO Summit, allies pledged to ramp up, , fueling further innovation. Here's a snapshot of key trends:
The great rebrand
The “dual-use” label is a masterstroke in marketing: it sanitises military tech by emphasising civilian spin-offs, making it palatable for founders and investors. This framing creates optionality, delaying uncomfortable conversations about core applications. Some common rebranding tactics include:
Founders’ Narratives: Framing military technology as commercial opportunity, often under the themes of “resilience” or “infrastructure security”.
Investor Justifications: Highlighting massive total addressable markets in commercial sectors.
Regulatory Easing: Labeling products as non-lethal or easily-adaptable to civilian contexts.
In reality, commercial viability remains often hypothetical. Many startups prioritize military contracts as the fastest path to revenue. For example, Anduril, valued at $30.5 billion after a $2.5 billion raise in 2025, develops drones for battlefield use but highlights border security and disaster response as “dual” opportunities. Similarly, Helsing, an AI defense firm, secured €600 million in 2025 for edge-AI in military operations, with “” in rescue and disaster response.
The dual-use framing has thus normalised what is effectively a defence investment funnel, even if true dual-use remains hypothetical, or distant at best.
The structural tension
The speed-driven nature of private investment and the governance-heavy reality of defence technology are uneasy partners. “Dual-use” serves as the rhetorical bridge that reconciles their differences – at least temporarily.
Private capital in defence is not inherently problematic – it can catalyse critical innovations. Genuine dual-use successes, like GPS evolving from military satellite tech to everyday navigation, demonstrate positive spillovers. Yet tension arises when commercial narratives are used to obscure primarily military intents, offering plausible deniability while pursuing financial returns. This “strategic ambiguity” offers psychological reassurance to investors while keeping the military dimension at arm’s length.
As defence tech investment accelerates – potentially exceeding $13 billion in NATO states this year - the dual-use narrative faces a credibility test. For the sector to develop sustainably, transparency is key: investors should embrace defence’s role openly rather than rhetorically. Without it, this newest growth sector risks being defined less by innovation than by ambiguity.