Open Editor's Digest for free
Roula Khalaf, Editor of the FT, selects her favorite stories for this weekly newsletter.
Palantir and Anduril, the two largest US defense technology companies, are in talks with about a dozen competitors to form a consortium that will jointly call for US government work in an effort to disrupt the country's oligopoly of “prime” contractors.
The consortium plans to announce as early as January that it has reached agreements with a number of tech groups. Companies in talks to join include Elon Musk's SpaceX, ChatGPT maker OpenAI, independent shipbuilder Saronic, and artificial intelligence data group Scale AI, according to multiple people with knowledge of the matter.
“We are working together to provide a new generation of defense contractors,” said one person involved in the group's development.
Action comes as technology companies seek to capture a large chunk of the US government's massive $850 billion defense budget from traditional contractors such as Lockheed Martin, Raytheon and Boeing.
The Consortium will bring together a heft of some of Silicon Valley's most important companies and will use their products to provide the best way to provide the US government with advanced security and weapons, according to a second person involved.
It comes as introduction of defense technology have attracted a record amount of funding this year, as investors bet they will be among the winners of higher federal spending on national security, immigration and space exploration under the incoming administration of Donald Trump.
Wars in Ukraine and the Middle East and political tensions between the US and China have increased the government's reliance on technology companies developing advanced AI products that can be used for military purposes, and encouraged investors in the sector.
Palantir's share price has risen by 300 per cent in the past year, giving the company a market capitalization of £169bn – bigger than Lockheed Martin. The group of data minds was founded by the tech investor Peter Thiel, who provided the initial support of Anduril, which was launched in 2017 and this year is valued at $ 14bn.
Meanwhile, SpaceX was valued at $350 billion this month, making it the world's largest private equity firm, and OpenAI has risen to an estimated $157 billion since its founding in 2015.
Each company tried to capture a piece of the government's defense budget. While SpaceX and Palantir have won large public contracts going back two decades, others are new to government procurement. OpenAI updated its terms of service this year to no longer expressly prohibit the use of its AI tools for military purposes.
US defense procurement has long been criticized as slow and anti-competitive, favoring a handful of decades-old firms such as Lockheed Martin, Raytheon and Boeing. These large conglomerates usually produce ships, tanks and aircraft that are very expensive and take years to design and manufacture.
Silicon Valley's booming defense industry has prioritized producing small, inexpensive, autonomous weapons that it says will better protect the US and its allies in current conflicts.
One person involved in the development of the consortium described it as a “coordinating business” in order to “drive the priorities of the Department of Defense” and “solve critical software problems”.
Some tie-ups between the tech groups expected to be in the consortium have already been agreed and the integration work will start soon.
Palantir's “AI Platform”, which delivers cloud-based data processing, this month was combined with Anduril's independent software, “Lattice”, to deliver AI for national security purposes.
Similarly, Anduril has combined its anti-drone defense systems with OpenAI's advanced AI models to work together on US Government contracts related to “aerial threats”.
A joint statement from Anduril and OpenAI about the partnership says it “aims to ensure that the US Department of Defense and the intelligence community have access to the most advanced, efficient, and secure AI-driven technologies available in the world”.
Anduril, OpenAI and Scale AI declined to comment on the development of the consortium. Palantir, SpaceX and Saronic did not respond to requests for comment.