The defense industry is undergoing its most significant structural transformation since nuclear weapons. Here’s what it means for geopolitics, industrial policy, and capital allocation.
For over a century, military power has been constrained by a simple equation: every shot requires a projectile, propellant, and a logistics tail to deliver more. Ammunition depots, supply convoys, and manufacturing surge capacity have determined the outcome of conflicts from the Somme to Ukraine.
That equation is about to invert.
Directed-energy weapons—particularly high-energy lasers (HELs)—have crossed the threshold from science fiction to operational reality. Israel’s Iron Beam, the U.S. Army’s DE M-SHORAD, and the UK’s DragonFire have all demonstrated successful intercepts against drones and rockets. The implications extend far beyond a new weapons category. We’re witnessing the birth of a new industrial logic where electrons replace explosives, and power infrastructure becomes the primary constraint on military capability.
Over the next 15 years, this transition is projected to reallocate $250–$300 billion in global defense spending from ammunition and metallurgy toward power infrastructure, semiconductors, and photonics supply chains.
The Economics That Change Everything
The numbers are stark. A modern missile interceptor costs $100,000 to $500,000 per shot. The Patriot PAC-3 MSE runs $3-4 million. Meanwhile, a high-energy laser engagement costs $10-$20 in power and maintenance.
That’s a cost-exchange ratio exceeding 10,000:1.
This isn’t marginal improvement—it’s a fundamental reordering of defense economics. The drone saturation attacks we’ve witnessed in Ukraine and the Red Sea have exposed a critical vulnerability: defenders can be bankrupted faster than attackers can be deterred. A $500 Shahed drone forcing expenditure of a $150,000 Stinger isn’t just tactically problematic; it’s strategically unsustainable.
HELs resolve this calculus. Israel’s 100 kW Iron Beam system, expected to reach initial operational capability this year, can neutralize incoming rockets and drones for the cost of running a household appliance for a few seconds. The magazine depth becomes infinite—bounded only by power generation and thermal management capacity.
Lifecycle economics are equally compelling. A 100 kW HEL system demonstrates approximately 70% lower total ownership cost than a kinetic short-range air defense (SHORAD) battery over a 20-year horizon, even after accounting for power infrastructure and optics maintenance.
The New Industrial Logic: From Metallurgy to Photonics
This transition isn’t simply about new weapons—it’s about which industries become strategically essential.
The old defense industrial base was built on steel mills, explosives manufacturing, and propellant chemistry. The new one resembles the semiconductor industry: GaN/SiC fabs, optical coating facilities, and rare-earth-doped fiber production become the strategic assets that determine national defense capability.
The critical supply chain shifts are already visible:
| Old Paradigm | New Paradigm |
|---|---|
| Aluminum, steel, copper (bulk) | Gallium, silicon carbide, CVD diamond (precision) |
| Propellant chemistry | Power electronics |
| Ammunition plants | Photonics foundries |
| Magazine depth | Power margin |
| Reload convoys | Recharge infrastructure |
The bottleneck moves from munitions throughput to power conversion efficiency. Programs now carry power and thermal Key Performance Parameters (KPPs) as primary metrics. Logistics planning converts truckloads of interceptors into fuel, kilowatt-hours, and coolant profiles.
The Concentration Risk No One’s Talking About
Here’s where it gets geopolitically interesting.
As of 2024, China produces 98% of primary gallium and 94% of germanium—the foundational materials for wide-bandgap semiconductors that enable compact power conversion and beam-control electronics. Beijing has already weaponized this position, implementing export controls in 2023 that created significant lead-time volatility for defense programs.
But this leverage is waning, not growing.
Unlike the bulk materials required for kinetic munitions, laser systems consume far less material per engagement. The shift from consumables to capital equipment means that once the industrial base is established, ongoing material requirements plummet. Western nations are already subsidizing GaN fab capacity through the CHIPS Act and European Chips Act, with companies like Wolfspeed, Infineon, and Qorvo expanding domestic production.
By the mid-2030s, export-control friction shifts from raw minerals to process technology—epitaxy, thin-film coatings, and adaptive-optics software IP. Control of fabrication and coating technology replaces control of mines as the primary source of strategic leverage.
The nations positioned to win this transition combine semiconductor capacity with energy security: the U.S., U.K., Israel, Japan, and South Korea. The losers are raw-material exporters—China, Congo, Russia—whose leverage in metals and REE refining declines as per-engagement consumption shrinks.
Military Implications Across Domains
Land Forces
The U.S. Army has deployed 11 laser prototypes, including four 50 kW DE-M-SHORAD vehicles to U.S. Central Command. A fiscal 2026 competition for the Enduring High-Energy Laser (E-HEL) program will transition from prototypes to scalable production. The doctrinal shift is fundamental: energy becomes the pacing factor for mobile operations. Modern brigades will deploy with micro-grids, hybrid generators, and battery buffers.
Naval Applications
The Navy is accelerating investment as missile engagements become unaffordable. Secretary of the Navy Carlos Del Toro has called for aggressive shipboard laser deployment within five to ten years. The HELIOS system (60 kW) is being installed on Arleigh Burke-class destroyers, while HELCAP aims to scale power sufficient to disable incoming cruise missiles. The UK’s DragonFire plans sea trials on a Type 23 frigate around 2027.
Air Domain
Airborne integration remains aspirational but advancing. At Sea-Air-Space 2025, General Atomics unveiled a podded laser for its MQ-9B unmanned aircraft—25 kW scalable to 300 kW. Industry is filling the vacuum left by cancelled government programs, investing their own capital in laser pods for U.S. and allied militaries.
Space
The least mature domain, but ground-based lasers capable of dazzling low-orbit satellites are believed to exist in China and Russia. The immediate implication is defensive: satellites need protection against dazzling and jamming. Space-based lasers could appear as part of missile defense architectures after 2035 as compact power generation matures.
Energy Security as Deterrence
Lasers convert electricity directly into lethality. This ties combat readiness to grid resilience and fuel diversity in ways that redefine what “military logistics” means.
Bases with micro-grids and modular nuclear or renewable generation nodes gain independence from tanker logistics. Energy-denial operations—cyber or orbital strikes on power infrastructure—become a new category of strategic attack. Power density (watts per ton of deployable hardware) emerges as a primary metric of force projection capability.
A shift of only 10% of air-defense intercepts to HELs could save NATO over $4 billion annually in missile procurement by 2035. Those savings re-emerge as investment in energy and semiconductor sectors, tightening civil-military industrial coupling in ways not seen since the Cold War.
The Investment Thesis
The redirection of defense value from propellants to photons realigns private capital with sectors once considered peripheral. Between 2025 and 2030, over $7 billion in venture and CVC capital has entered directed-energy-adjacent domains: GaN/SiC power semiconductors, AI-based targeting, optical coatings, and thermal management.
The market trajectory:
| Year | Global HEL Defense Spending | Avg. Intercept Cost | Defense Power Infrastructure Capex |
|---|---|---|---|
| 2025 | $1.0B | $100,000 | $25B |
| 2040 | $9.5B | <$100 | $180B |
Investment clusters with the highest projected returns:
- Power & Thermal Systems – GaN/SiC converters, advanced cooling, CVD diamond heat spreaders, micro-grid OEMs
- Optics & Photonics – High-damage-threshold mirrors, coatings, rare-earth-doped fibers (10-15% CAGR through 2035)
- AI Control Systems – Adaptive optics, beam-tracking algorithms, real-time atmospheric correction
- Synthetic Materials & Recycling – Gallium recovery, REE processing, synthetic diamond fabrication
The dual-use commercial pull from EVs, data centers, and satellite communications offsets defense cyclicality, offering earlier exit opportunities than traditional defense investments. Projected IRR of 18-25% for early-stage ventures aligned with national industrial-policy incentives.
What This Means for Strategic Planning
For defense planners, the implications are clear:
“Magazine depth” becomes a measure of energy capacity, not munitions count. Force structure planning must incorporate power generation, thermal management, and grid resilience as primary variables. The new Key Performance Parameters are beam-uptime, $/neutralization, and power-resilience metrics.
For industrial policymakers, the priority shifts:
- Localize GaN/SiC wafer and epitaxy capacity
- Expand optical coating and high-damage-threshold optics manufacturing
- Invest in CVD diamond and advanced thermal management
- Harden power infrastructure and develop deployable micro-grid capabilities
For investors, the guidance is straightforward: anchor portfolios in energy, materials, and photonics rather than weapons platforms. The enabling physics—energy conversion, storage, and photonics integration—offers asymmetric upside with limited geopolitical downside.
The Bottom Line
The age of metallurgy-based defense is ending. Directed-energy platforms mark the beginning of a power-centric defense economy where nations compete on efficiency, fabrication, and energy resilience rather than stockpiles.
By 2040, strategic advantage will correlate more with megawatts available per platform than with missile inventory. An army’s “firepower” becomes the integral of its megawatt-hours, not the tonnage of its munitions.
The imperative for strategic thinkers—whether in government, industry, or capital allocation—is clear: invest in the industrial spine of the photon age before “energy as ammunition” becomes the strategic default.
The transformation is already underway. The question is whether you’re positioned on the right side of it.
This analysis draws on research from RAND Corporation, GAO assessments, CSIS defense studies, and program data from U.S., UK, Israeli, and European defense ministries. For a detailed examination of supply chain risks, military implications by domain, and investment frameworks, see the full OpImpact Fund research report.
About the Author
Robert Mehler is a Partner at OpImpact Fund, a defense deep-tech venture capital fund focused on dual-use technologies at the intersection of national security and emerging technology markets.
Tags: Defense Technology, Directed Energy, High-Energy Lasers, Defense Industrial Base, Geopolitics, Semiconductors, GaN, SiC, Power Electronics, Venture Capital
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