Air defense is entering a new phase. Cheap drones have exposed the high cost of relying on traditional interceptors for every threat. That shift is pushing governments toward lower-cost counter-drone systems and creating a fast-growing defense market.

The economics driving the trade

The challenge is cost. Militaries are using expensive interceptors against cheap drones. High-energy lasers and high-power microwave systems can bring that cost down dramatically. The Congressional Research Service estimates that shipboard solid-state lasers cost between $1 and $10 per shot.

The global counter-drone market is projected to grow from $2.1B in 2025 to $19.1B by 2035, one of the fastest growth rates in defense.

Israel crossed the deployment threshold first. Elbit SystemsESLT

supplies the high-power laser source for Israel's Iron Beam, which was delivered to the IDF in Dec. 2025.

That made Israel the first country to field what its defense ministry described as an operational high-power laser interception system.

The directed-energy weapons market was ~$10B in 2025 and is projected to reach $35.3B by 2034.

Where acquisitions are confirming demand

Corporate deal activity is another sign this market is moving into the mainstream. Motorola SolutionsMSI

agreed to acquire D-Fend Solutions for $1.5B. D-Fend's technology takes control of rogue drones and guides them safely to the ground.

Smaller players are consolidating too. VisionWave HoldingsVWAV

plans to invest up to $17.5M for a 52% stake in Foresight Autonomous HoldingsFRSX

, combining Foresight's 3D sensing technology with VisionWave's AI and radio-frequency systems.

Government support is building as well. The Pentagon's Drone Dominance initiative aims to field ~300K low-cost autonomous systems by the end of 2027, while the administration has reportedly explored taking equity stakes in US drone and counter-drone companies.

The software layer

The hardware is only part of the equation. A laser is only effective if the software behind it can identify, track, and engage multiple fast-moving targets in real time.

Palantir TechnologiesPLTR

partnered with Anduril Industries in late 2024 to combine AI targeting with autonomous battlefield software. In 2025, the US Army selected Anduril's Lattice platform for a program that links battlefield sensors with automated fire control to speed up engagements.

Teledyne TechnologiesTDY

sells the Cerberus XL through FLIR Defense. The platform uses long-range radar, thermal and optical cameras, and RF sensors to monitor as many as 500 targets simultaneously before sending targeting data to kinetic, electronic, or directed-energy systems.

AeroVironmentAVAV

is also ramping production. Executives said capacity is up ~300% over the past year, with plans to add another 500% over the next 12 months. Its laser weapon system recently defeated all 18 targets presented in a Navy test on a destroyer.

Domestic demand is broadening the market

The US Army and FBI are jointly expanding counterdrone training for state and local law enforcement ahead of the 2026 FIFA World Cup.

The program trains personnel to detect, assess, and respond to unauthorized drone activity at crowded venues. That is a domestic use case running parallel to military procurement and broadening the addressable market beyond battlefield applications.

For investors, the companies connecting sensors, software, and weapons may matter just as much as the ones building the weapons.