The war in Iran has led to a sudden and significant demand on U.S. air and missile defense systems — ballistic missiles, drones, and precision munitions — creating an opportunity for private equity investors to buy into the middle of the munitions supply chain. Institutional investors’ interest in defense companies, particularly in technology, has been rising for three years, as many have recognized that the sector is essential to national security. Institutional Investor reported in September that U.S. startups in the sector raised more money since early 2023 than in the previous nine years combined. 

Even if the war ends within the next few weeks, weapons are already being consumed at a pace that is putting pressure on inventories and production capacity. With billions needed to restock, PitchBook argues that there’s an opportunity for private equity focused on aerospace and defense.  

For “private equity investors, the significance of this conflict lies less in the political context and more in what it reveals about weapons consumption, inventory depth, and industrial capacity,” wrote Jim Corridore, a research analyst at PitchBook. “Modern warfare consumes precision munitions and defensive interceptors at a rate that few peacetime production lines are designed to sustain. When stockpiles are drawn down quickly, replenishment becomes a multiyear procurement story. That is where capital can find opportunities.” 

Allocators have recently told Institutional Investor that they have been both seeking and benefiting from equity opportunities in defense.  

Corridore argues that the most attractive opportunities are in propulsion components, electronics, composite structures, drones, and maintenance and other providers supporting higher production.  

Interceptors such as the PAC-3 MSE, THAAD, and Standard Missile-3 cost tens of millions of dollars each, so replacing them quickly becomes a multibillion-dollar task if usage remains high.  

The biggest bottleneck is industrial capacity. Prime contractors depend on smaller suppliers, which PitchBook says will determine how fast production can increase. Inventory drawdowns lead to multiyear procurement commitments, which gives investors a window into long-term revenue streams across the supply chain.  

“Private equity investors stand to benefit if they can acquire makers of components and subassemblies — pre-built units that are made of several smaller parts but are not yet a finished product — as makers of fighter jets and other large weaponry are generally out of their reach,” Corridore added.