Defence 2.0: How Drones and Cyber are reshaping investments

Last updated: 25th June 2026 | Author: Tom Bailey

Summary

Drones are becoming central to modern defence, helping militaries scout, gather data, direct fire and carry out strikes at scale.
Drone production capacity is becoming a strategic priority, because drones are often designed to be lost and replaced quickly.
Software and AI are increasingly important, as militaries need to coordinate large numbers of drones and process huge volumes of battlefield data.
Cyber security is now part of the defence story, as modern militaries rely more heavily on connected systems, networks and data.

Defence 2.0: How Drones and Cyber are reshaping investments

Unmanned aerial vehicles, or drones, are not new. The Austrian Empire used pilotless balloons to drop bombs during the 1849 siege of Venice, with mixed results. The 20^th century saw militaries regularly experiment with unmanned aircraft, again with mixed results.[1] And in the 2000s and 2010s, US drones such as the Predator and Reaper became symbolic of the Global War of Terror.[2]

But it is only in the past few years that drones have come to be seen as a defining technology of modern defence. Ukraine has become the use case. The ongoing war has seen drones used to scout enemy positions, map the battlefield, gather data, direct and correct fire and carry out short range and long range strikes. This has shown the effectiveness of drones when both used at scale and with a high degree of connectivity.

Drones are “attritable” and therefore must be produced at scale

In defence jargon, drones are sometimes described as “attritable”.[3] This simply means they are used with the expectation that many will be lost and replaced. This sits in stark contrast to fighter jets, warships or tanks. These are expensive, crewed platforms, so militaries place a high value on protecting them. Drones, by contrast, are often deployed in larger numbers on the assumption that many will be lost.

But if a miliary wishes to use drones at scale, it must be able to produce at scale. Drones cease to be “attritable” if they cannot be readily replaced. We can already see this in practice in Ukraine. In 2025, Ukraine produced around 4million drones. This year, it is forecast to produce around 7million. In contrast, the United States produces 100,000 per year.[4] The fact that many of these US produced drones are more “high end” (and expensive), simply reinforces the point. The problem the US, and other NATO members have when it comes to drone production.

The US is now taking concrete steps to address this. The US Department of War’s FY2027 budget proposal includes around $70bn in requests for drone and counter-drone spending.[5] A large part of that will go toward boosting the US’ drone production capabilities. The US’ war secretary has stated a key goal is to “kickstart U.S. industrial capacity and reduce prices, so our military can adequately budget for unmanned weapons. »[6]

Indeed, it was recently reported that the White House was in talks to provide direct funding to US drone companies to allow them to ramp up their production capabilities.[7] Direct investment from the US government in defence companies to scale up their supply chain has precedence, with Department of War investing $1bn in L3Harris to boost its missile capabilities earlier this year.[8]

As a result, specialist drone companies have increasingly captured investor attention. Many leading drone specialists such as Red Cat, Ondas and Unusual Machines had revenues of under $100mn in 2025, meaning even a fraction of the $70bn DoW drone spend potentially proving transformational.[9]

« Drones can only be used at scale if they can also be produced at scale, making production capacity a key part of modern defence. »

Drone scale creates a software and cyber problem

But as important as being able to deploy drones at scale is, it only becomes useful if those drones are coordinated and connected. Drone pilots need to be able to control multiple drones simultaneously. At the same time, the vast amount of data that observation drones gather needs to be sorted, analysed, understood and acted upon. AI and software, therefore, is required to make the mass use of drones useful.

Swarmer is an example of a company that assists on the coordination side. It provides software that allows a single drone operator to fly hundreds of drones in one coordinated “swarm”. The company’s software has already been used in Ukraine in over 100,000 combat missions.[10]

When it comes to data processing, Palantir is among the best-known names. As the experience of Ukraine has shown, drones gather huge amounts of data, far more than any human can feasibly analyse on their own. The value of that data depends on whether it can be combined with other sources of battlefield information and turned into decisions quickly.

Palantir’s software sits in the data and decision-making layer of modern defence. Its Maven Smart System, for example, is used to help process large volumes of battlefield data, including from drones and satellites, and support decision making.

But while drones are emblematic of a more software-enabled form of defence, they are part of a broader change. Modern militaries are becoming more data-dependent in general. Intelligence, surveillance, logistics, targeting, air defence, command systems and communications all increasingly rely on software and networks. The more information a military gathers, the more it needs to process, protect and share that data quickly.

This creates a different kind of vulnerability: data being stolen or corrupted. This is why cyber security has become part of modern defence. This makes companies such as Palo Alto Networks, CrowdStrike and Fortinet relevant. They sit in the wider cyber defence market that protects networks, endpoints, identities, cloud systems and government infrastructure, and have contracts with NATO-allied governments.[11]

Drones point to defence 2.0

Over the past two years, investor attention has been captured by expanding NATO defence budgets and growing order backlogs at the large defence primes – for good reason.

But the defence story is not only about more spending but also how defence itself is changing. The war in Ukraine has shown that modern militaries need to produce at scale, process vast amounts of data and protect the networks and software systems on which they increasingly depend.

The rise of drones is one part of this broader shift toward Defence 2.0: a more data-dependent form of defence, where software, secure networks and cyber are becoming critical parts of military capability.

[1] https://www.propelrc.com/history-of-drones/

[2] https://www.theatlantic.com/magazine/archive/2010/07/the-rise-of-the-drones/308156/

[3] https://a16z.com/keeping-the-drone-swarm-alive/

[4] https://united24media.com/latest-news/bloomberg-ukraine-now-produces-more-military-drones-than-nato-combined-13330

[5] https://www.war.gov/News/Releases/Release/Article/4466038/department-of-war-releases-the-presidents-fiscal-year-2027-budget/

[6] https://www.war.gov/News/News-Stories/Article/Article/4346822/war-department-asks-industry-to-make-more-than-300k-drones-quickly-cheaply/

[7] https://www.wsj.com/politics/national-security/trump-us-drone-company-funding-cadef1f7?msockid=0691dac183986bf717d6ce5d82536a73

[8] https://www.war.gov/News/Releases/Release/Article/4376463/department-of-war-announces-1-billion-direct-to-supplier-investment-to-secure-t/

[9] https://hanetf.com/news-insights/how-much-will-the-us-military-spend-on-drones/

[10] https://getswarmer.com/news/shoot-move-communicate-combat-fundamentals-in-the-modern-battlespace/

[11] https://vettafi-docs.b-cdn.net/Factsheets/NATOP%20Factsheet.pdf

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[1] https://www.propelrc.com/history-of-drones/

[2] https://www.theatlantic.com/magazine/archive/2010/07/the-rise-of-the-drones/308156/

[3] https://a16z.com/keeping-the-drone-swarm-alive/

[4] https://united24media.com/latest-news/bloomberg-ukraine-now-produces-more-military-drones-than-nato-combined-13330

[5] https://www.war.gov/News/Releases/Release/Article/4466038/department-of-war-releases-the-presidents-fiscal-year-2027-budget/

[6] https://www.war.gov/News/News-Stories/Article/Article/4346822/war-department-asks-industry-to-make-more-than-300k-drones-quickly-cheaply/

[7] https://www.wsj.com/politics/national-security/trump-us-drone-company-funding-cadef1f7?msockid=0691dac183986bf717d6ce5d82536a73

[8] https://www.war.gov/News/Releases/Release/Article/4376463/department-of-war-announces-1-billion-direct-to-supplier-investment-to-secure-t/

[9] https://hanetf.com/news-insights/how-much-will-the-us-military-spend-on-drones/

[10] https://getswarmer.com/news/shoot-move-communicate-combat-fundamentals-in-the-modern-battlespace/

[11] https://vettafi-docs.b-cdn.net/Factsheets/NATOP%20Factsheet.pdf

Frequently Asked Questions

What is Defence 2.0?

Defence 2.0 refers to the shift towards a more technology-driven form of defence. It includes drones, artificial intelligence, software, data processing, secure networks and cyber security, alongside traditional military equipment.

Why are drones important in modern defence?

Drones are important because they can be used for surveillance, mapping, targeting, data gathering and strikes. They can often be deployed in large numbers and at lower cost than traditional crewed military platforms.

What does “attritable” mean in relation to drones?

“Attritable” means equipment is expected to be lost and replaced. Many drones are designed to be used at scale, with the assumption that some will be destroyed, jammed or lost during operations.

How are AI and software changing defence?

AI and software help militaries manage large amounts of information. They can support drone coordination, analyse battlefield data, improve decision-making and help connect different defence systems more effectively.

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Defence 2.0: How Drones and Cyber are reshaping investments

Last updated: 25th June 2026 | Author: Tom Bailey

Summary