“Next week, I'm going to meet with the defense prime contractors. I'm going to meet with them here, [in] Florida, and we're going to be talking about production schedules because they're too slow,” President Donald Trump said Monday during a speech announcing plans to build a giant new surface combatant in the next three years. “We have many countries, allies that are wanting to buy. We make the greatest equipment in the world by far, nobody's even close, but they don't produce them fast enough. So, we're going to be meeting with them to talk about the production schedules. We're going to have strong production schedules. And the only way they're going to be able to do that is to build new plants.”

The short-notice summons is par for the course in 2025, which has been a lucrative yet bumpy ride for many defense companies. Policies have changed, and occasionally changed back, in rapid succession, from tariffs to federal personnel cuts that have slowed contracting, to shutdowns and, now, new shipbuilding demands on top of an already accumulating backlog. 

But, overall, it’s been a win with defense companies expecting higher returns. S&P's aerospace and defense index, which tracks select stocks, has risen 50 percent for the past year as of Dec. 22, which is good for investors.

There’s also been a lot of tough talk from defense officials, who have lambasted traditional defense contractors for sluggish supply chains, increased costs, and yearslong production delays. Newer defense entrants, on the other hand, have been uplifted and highlighted as the model for primes to emulate. 

So far, proposals to reform how the Pentagon buys everything from software to tanks have largely been welcome, though  some vendors have expressed reticence and concerns about how things will ultimately be implemented. 

“I think it's pretty positive. And, that's because, unfortunately, the world is more dangerous. So, when that's true, defense tends to do well,” Michael Brown, former head of the Pentagon’s Defense Innovation Unit, told Defense One.

That suggests more orders for prime defense contractors, especially now that Congress approved multiyear procurements for certain missile programs in the 2026 defense policy bill. But it’s also good news for defense tech companies. 

“There's also the recognition [that] we need the new technology too. We need what we're winning with in Ukraine. So that means a whole new set of vendors are going to be successful—the Shield AI’s, c3.AI’s. You're going to see the next wave, after SpaceX, Palantir and Anduril,” said Brown, who is a partner at the venture firm Shield Capital.

Eyes on allies

Defense companies expect increased defense budgets abroad, but continuing resolutions and the inability to start new programs at home—plus DOD’s rattled defense contracting staff—could present more immediate challenges. 

Higher demand for U.S. weapons from allies and partner nations could be promising for new and established defense companies, but politics could make things harder. 

“There’s a tremendous amount of money to be spent. And so there is a big opportunity for U.S. companies to be selling to allies. I'm not enthused about the fact that we make that more difficult with some of the political rhetoric,” Brown said, noting the White House’s recent National Security Strategy, which has been heavily criticized. 

“But there's a tremendous opportunity for American companies now and for us to see what the rest of the world is developing. I would love to see with the US and allies, more of a collaborative approach of ‘we're looking for technology in your cupboard, and you can look in our cupboards.’ And we make ITAR less restrictive. We go faster on foreign military sales, which has been addressed a bit with this transformation acquisition. But imagine a world where that was happening in a more frictionless environment. That would be better for everyone.”

Pressure to perform

Garrett Smith, an active Marine Corps officer and CEO of Reveal Technology, an AI company that develops biometric tech for operators, said 2026 will be the year that everyone performs. 

“Pressure is building to actually deliver. So, I think it's a healthy thing for the industry to have,” Smith said. “All of that pressure from private finance on the companies to actually deliver, and then the pressure from the journalistic crowd and from the customer…all that pressure on coal, it turns it into a diamond.” 

But could the momentum be curbed by ongoing budget woes given that the U.S. government has been operating under a continuing resolution for over a year?

There’s also still shutdown concerns even though the government is currently funded until the end of January. 

The government shutdown has a longer tail than people realize, Jackie Barbieri, CEO of Whitespace, a data and intelligence analysis company, told Defense One. 

While there was “immediate pain” for some companies, the shutdown’s effects could “reverberate over time. And I definitely think that will be the case in 2026 even if we don't have a CR,” Barbieri said. “Things are just a little bit slower than usual and so folks are having to change their calculus a bit.” 

Even beyond companies, those inside the Pentagon are waiting for budget dollars to start new projects but efforts are stalled until there’s full defense appropriations. But there’s upside, hopefully.

“That pent-up drive to move technology plans forward—we’re going to see some priority areas actually get addressed. And I think the number one thing I see from where we sit is that intelligence is going to move to the edge,” along with the use of agentic AI, she said. 

Smith also hopes to see more data solutions in troops’ hands. He cites the Army’s Soldier Born Mission Commander program. But he notes that the current continuing resolution hampers innovation. 

“CRs don't allow for new starts and if you claim to be doing innovative stuff, you need to start new programs. You need to start new things,” Smith said, noting that Congress was able to align program spending in fiscal 2025 with the president’s budget despite a full year of stopgap funding. 

“But also, there's a bit of a silver lining, where, if [your technology is] an actual priority for the Trump administration's view on what's important, now there's every chance in the world that your thing gets funded anyway. So, it's a strange time. Very, very strange time.”