LIVE: Space & Defense Update at the NYSE | with July 24, 2026

0:19Welcome everyone to the Space and Defense update. I'm Mo Islam. I'm here with Jack Kerr. It's Friday, July 24th. It's a summer Friday here in New York City. Our first Friday recording. recording, I think. Yep, we were here yesterday too. We were here yesterday. So we've had back to back days here at the financial capital of the world, the New York Stock Exchange, where just yesterday we held our AI Bio Summit. And we do have some big news from Arkea that we haven't talked about on the show yet. So about two months ago, we acquired one of the leading biotech media brands, a brand called Decoding Bio.

0:51And it's run by two amazing people, Pablo Lubroth and Amy Kapadia, now part of the Arkea family. But just to give everyone some context, You know, Archaea is a media firm. We're focused on critical technology industries like space defense, and now thanks to decoding biotechnology. And, you know, ultimately, you know, our belief is that we are in a technology revolution, and that's happening in biology very specifically. AI is changing how medicines are discovered, how bio is engineered, and ultimately how these next generation of companies are built. And that's what we're going to be focused on.

1:23And just yesterday, we had about 300 people here at the exchange. We rang the opening bell, which was an amazing experience. But more on that on another show, because today we're going to talk about defense. Yeah. Yeah, let's have some biotech guests come in in the next couple of weeks and months. But for the first time, we're going to dedicate most of today's content on defense technology. Obviously, a lot has changed over the last couple of years. This is an industry that has largely for the last couple of decades been defined by just a few contractors, a.k.a. the primes. It's long procurement cycles, companies going over budget, technology being developed behind closed doors.

2:03And it really became the symbol of government bloat and kind of inefficiency. So whenever that happens, Silicon Valley inevitably comes in. And we are now seeing that today in the last couple of years is this new wave, the next generation of startups being built to kind of focus on the needs of the Pentagon and develop new technologies, that being autonomous systems, advanced manufacturing platforms. We talk a lot about space infrastructure. That's a big thing with defense. You also have next-generation aerospace platforms as well. So, lots to cover today. We're going to have a lot of great guests come on the show as well.

2:44Yeah, and I think maybe just be helpful to kind of frame a few kind of more, I think, bigger trends that are happening, And we can start at the geopolitical level. And, you know, this is pretty well known. But, you know, we have the conflict in Ukraine that has shown the importance of mass autonomy and electronic warfare. You have the conflict in the Middle East, which has shown the importance of integrated missile defense. And, you know, now obviously we're building something quite similar, which you'll talk about. And then China has made the Indo-Pacific a significant pacing challenge for the U.S., which basically means that the adversary is setting the pace in military competitiveness in terms of infrastructure and various things like shipbuilding.

3:26Europe has also now woken up. And I think in general, conflict is increasingly defined by, like you mentioned, software, drones, autonomy, industrial capacity. Yeah, and you also have the government that's behaving very differently. The government, that being the Pentagon, is realizing that everything is changing very quickly. Geopolitics is changing and modern warfare is changing. And they are doing everything in their power to adjust to that. The biggest driver here is you have a trillion dollar defense budget, which to put that into perspective, AI CapEx spend in the U.S. comes in. annual spend comes in around a trillion dollars.

4:07So this is a big market, a big revenue opportunity for companies. But the Defense Department is definitely pushing as much as they can through that. Golden Dome is a big initiative. You just mentioned that. But that is our missile defense program that is combining all domains, that being space, air and on the ground. And then finally, it's just a cultural shift in the Pentagon to have faster acquisition pathways and to be more nimble and also take more risks with platforms and with new technology because modern warfare and defense has become a cat and mouse game where things are moving very fast.

4:47And the only way to appropriately address that and adapt to that is through changing your procurement systems. Yeah, exactly. And you've also had this pretty significant cultural change in Silicon Valley. in the investing world. I mean, five years ago, if you were talking about investing in defense, you were, I mean, it was oftentimes you're laughed out of the committee, right? So I think today, it's become now one of the hottest, like, let's say consensus trades. And you have crossover funds, hedge funds, private equity, I mean, really the entire gamut of the capital stack that's looking at defense and looking at defense very seriously.

5:24And just to kind of throw some numbers at this, According to PitchBook, there was nearly$36 billion that was invested in defense and defense-adjacent companies in the first half of 2026. That's 40 % higher than it was in 25. Yeah, and a lot of that funding is being concentrated in a couple names. So I think the question here is, are we getting overheated relative to the potential dollar amount the Pentagon is willing to spend on startups? And there's a lot of talk about how appropriations is going to shift material and nontraditional contractors are going to reap the benefits. But we, as of today, haven't seen that in legislation and in programs that have been put forth.

6:07I'll give you we were talking about this with our colleagues, Aaron and Barrett, the other day at Tectonic, our defense tech publication. But there was an article in The Wall Street Journal titled, The Pentagon is Finally Buying, Some in Parentheses, Weapons from Startups. And the article writes, the Pentagon contract spending on the 15 highest valued defense tech startups in the last fiscal year tripled from 2022. Yet they accounted for less than 1 % of total dollars for all defense contractors, a rate that has held consistent for years. And it goes on to say so-called non-traditional companies, which include venture-backed startups and small businesses and commercial tech companies, basically everyone besides a prime, received over$122 billion in the prior fiscal year, double the amount from a decade prior.

6:59But during the same period, the Pentagon also doubled spending for the prime. So it's a little bit of all rising tide lifts all boats. But we haven't quite seen that outsized market share get from the startup. So a lot of talk about it. And that could be the potential here is, hey, we can go from 1 % to 5 % in the next three or four years. And that's a meaningful dollar amount. And right now we are just building the tech in preparation for those contracts to come out. Yeah. And one area that's gotten quite a bit of attention is hypersonics. We are, I mean, I think most people would agree across both military and Silicon Valley that we're quite behind China as far as fielding and testing hypersonic technology.

7:43China fielded their first hypersonic missile in 2019, while we're effectively just getting around to fielding a similar capability today. But with that, we can turn it to our first guest. And I'm also very excited to announce that we're going to have our first floor correspondent, so Rhea Sedaris, who's going to be joining us. She's here sitting on the floor at the exchange with Zach Shore, CEO of Hermes, an L.A.-based builder of supersonic and hypersonic aircraft here for the U.S. military. So, Rhea, can you hear us? Hi, amazing. Hi, everyone. I'm Ria. I'm director here at Archea Media. I'm here with Zach Shore, CEO of Hermias.

8:18Hermias is building the fastest unmanned military aircraft in the world. Zach, you've had amazing success this year. I mean, biggest DIU contract of all time. You had an incredible raise this year,$1 million valuation, and you've just recently become the CEO. How are you feeling? Yeah, it's been a big year. I mean, I feel very lucky. A lot of the things you just described had little to do with me and more to do with the team. So I'm really humbled to be in the position to lead the group. Amazing. I mean, they're very lucky to have you as well. So can you just tell me a little bit or maybe explain to me a little bit more about what Hermes is actually building?

8:48Yeah. So we're building the world's fastest unmanned aircraft and particularly focused for defense applications. Amazing. All right. So I know in the past you were at Hermes before. I believe you're president. So just walk me through the transition to the CEO role and essentially what your plans are for the next 12 months. Yeah. So I was CRO and then the president. And so the president role was really about kind of transitioning and getting to learn other parts of the business, the operational side. the engineering and technical side. And then for us the next 12 months, the way I think about the growth we have ahead of us is stabilizing the business for that scale phase, right?

9:20So we're starting to secure contracts. The aircraft are flying. We went 1.6 last week and our Mach 2.2 plane, the Mach 2 plane is now on the ramp in Spaceport America. So now that we're sort of graduating from that R &D phase into the prototyping and scale phase, how do we prepare the business financially and physically for that scale? Amazing. I mean, okay, quick question. So when people hear that you're building the fastest aircraft of all time. What is, what are they misunderstanding about that? What does that really mean to them? I think there's a couple of things. One, misunderstanding the difference between a rocket and an airplane, right?

9:51You've had vehicles that are rocket powered and even flown by human beings that have gone faster, but they're not airplanes. They're not air, air breathing vehicles. Uh, and this has sort of been a lost art for the United States for a long time where aviation is really in the military sense, been focused on low observability or stealth. And there's a whole number of reasons why that's become more expensive and less useful. And speed has kind of come back as in vogue as a driving factor and survivability and efficiency. I mean, that makes a lot of sense. So a quick question. What are you really trying to accomplish and solve for the American warfighter?

10:20Yeah, I think everybody's understanding right now that things are expensive and scale is hard. So how do we deliver overmatch to the United States military? So I think one of the key things to consider if we look at Ukraine is there are a lot of technologies that we see in Ukraine that are very relevant that the United States needs, but they are match capabilities. They sort of establish a position where you won't lose, but you're not necessarily going to win. American military might is all about overmatch. How do we destroy the enemy's ability to wage war so they never even try to. Overmatch capabilities allow you to do that.

10:48I think stealth is a great example. We saw this in Gulf War, right, us revealing in 1991 that capability and showing the world like, ah, do you really want to do this? And using it throughout Iraq and Afghanistan, all these other things. Our ability to develop and deliver high-speed, high-volume aircraft gives us another example of overmatch that's affordable and scalable so that we can deter any potential future conflicts, or if we have to win or fight, we'll win them outright. I mean, I think you said something just earlier now that was really interesting that most of the innovation, it comes from defense, essentially, it starts that way.

11:19So I heard that, you know, one of the original implication or objectives of Hermia was to create an aircraft that would take someone, say, for example, from New York to Paris. I mean, selfishly, I would take it to London, but New York to, let's say, Paris in an hour and a half. Is that still a potential objective? Yes, absolutely. It's sort of over the horizon is how I would describe it. So So when the company was founded, I think we thought of commercial aviation and military missions as a parallel path. Really, as you start getting into this, they're not. They actually have to be kind of serialized.

11:47And that's because the economics of commercial flight are so heavy. So certifying a new propulsion system, certifying a new airframe, billions of dollars of cost and years of work before you could ever see a return on investment. The financing of that is incredibly complex. So the best way to actually get after commercial flight is to develop, deliver, and scale a sustainable defense business that can cash flow, solve a problem for the warfighter. And then you've earned the right, both from a technical standpoint and an economic standpoint, to pursue commercial aviation. Yeah, absolutely. So let's talk a little bit of money then.

12:16So your recent funding, it was Series C, billion-dollar valuation. The round included$200 million in equity,$150 million in debt. Why did that structure make sense at the time, and does it still make sense? Yeah, absolutely. So, I mean, we're a hardware-rich company. our ability to capitalize these resources is really important for us. So the equity debt ratio was a good plan for us. As we go forward, we'll look at the balance of the business, but we're really excited about what we're doing and we have a lot of hardware coming online. So then what did this raise allow you to do this year that you weren't able to do last year?

12:44Yeah, so get these aircraft out, right? So there's a lot of long lead items, hardware is expensive, as you know, infrastructure and manpower. This got these three prototypes, soon to be three prototypes onto the ramp and in the air. Okay, amazing. And so, yeah, just last week, I believe it was last Friday, you did fly 1.6, Mach 1.6. What was that like? Who was there? Yeah, I mean, I was there. AJ, the chairman of the board, his co-founder was there as well as some of the core team. Yeah, I mean, it's always nerve wracking. It's interesting because, you know, the aircraft takes off and lands in front of you and then it goes off and it disappears.

13:13And we're all kind of squinting, looking for a reflection somewhere because it's just way out over the range. And at Mach 1.6, you're just eating up miles pretty quick. But it was exhilarating. I mean, building an airplane, that's only the fourth time that that aircraft has flown and having it hit Mach 1.6 on less than 100 minutes of flight. I mean, these are milestones that are game changing. America does not or has not in at least a generation flown aircraft this aggressively, let alone build and develop them. That's, I mean, pretty amazing. I know we got to FaceTime actually right after it happened.

13:40So I was excited to see you today. Where do you expect the revenue to come from in the next two years? And then what would that look like in the next five years? Yeah. So I think in the near term, we're seeing significant revenue and partnership from the Defense Innovation Unit. beginning to engage with the services, so the Air Force, the Navy in particular. I mean, we're a defense business, so if it flies and you're looking at DOW, it's the Navy, the Air Force, and eventually the Marines. I'm a Marine, so I don't mean to speak ill of them, but we're not exactly the biggest budget in the department, so really the Navy and the Air Force, and having some preliminary discussions with some allied nations as well.

14:08Amazing. Actually, I do want to talk a little bit about the defense contract. So from my understanding, about 90%, actually let's say 99 % of the contracts go to the primes. That 1%, you know, is left for the defense tech startups. how are you able to access that 1 %? And then also, backing off this question, is there a line item that's specific to what Hermes is building? Yeah, so to the first part, excuse me, it is, it's a knife fight in a phone booth to fight over that 1%. So I think you really have to be thoughtful about what you're building, what problem you're working on. Our view is stay out of the commodity side of the market.

14:37There's a lot of great work being done on things that ultimately are just gonna be price pressure down and the primes have said, go ahead, you guys can go play on that. That's not where we see the innovation coming from. Now it is a bit more of a moonshot approach, but when you land on the moon, and you plant your flag and it's kind of like good luck trying to chase us. And so by pursuing problems that are typically historically in the domain of the primes, we are not trying to fight over that 1%. We're trying to fight after that 99 % and pull 5 % out. And that's a different go to market motion than I think typical startups in the sector.

15:04Definitely. So$1 billion valuation. I mean, congrats. It's amazing. For a hardware company that's still building towards scale revenue, what do you think investors want to see? What milestones do you think they want you to see you beat before you started on the race? Yeah, I mean, I think there's two. One is obviously technical milestones, like does your widget work? I think we've proven that pretty well, and even if we got into the details of what are the challenges with these types of technologies, it's really engineering problems, these aren't science problems. Effectively, everything we've done has been done before in some way, shape, or form.

15:31It's really about the economics. This is the department want to buy these systems at scale, and so we don't want to get ahead of the department right now, but we feel very confident that we'll have the contracts that prove that yes, there is a there there. The question for the investors is how long do you want to wait? How do you want to manage your alpha and risk for return, which I totally get before it becomes obvious. And it's sort of just a financing round. Absolutely. I mean, I don't know if you know this, but I'm actually an engineer by training. So I get very excited for the technical side of this as well.

15:54Before we get into the technicals, are there any plans for another raise? Yeah. So, I mean, we're looking at financing right now. We're in no hurry. The balance sheet is really strong. We're flying aircraft. The contracts are working. But yeah, I mean, you got to grow this business and we don't want to slow down. I mean, speed is life for a company like this, not even in the ironic sense, like literally, you don't want to lose momentum in your building and your flight. So yeah, we're likely to look at coming to market. We've had a bunch of inbounds and we're really excited to be answering questions from investors.

16:19And, you know, I see something probably in the next few months for us, but nothing imminent. Amazing. Okay. So quarter horse flew a Mach 1.6. You have quarter horse Mark 2 ready to go. What's the timeline like this? What comes after that? Yeah. So I think, you know, we're solidifying the delivery of the aircraft at this point. And, you know, You can build a product, but that doesn't necessarily mean that that product is missionized for the military. So as we demonstrate the flight parameters of these aircraft and what they're capable of, the next step is putting the radios on, putting the payloads on, integrating those into the joint force.

16:52And so the next sort of stream ahead of us over the next 18 months, as we start delivering prototypes to the military, is what we would call missionizing those platforms. And so as we solidify and finish envelope expanding the hardware, now we're going to start demonstrating store separation of payloads, radio integrations, autonomy in flight, things like that, to say, I've taken an aircraft and I've made it into a product for the department. Amazing. If they had to, could they use them right now, these prototypes? Yeah, I mean, if the balloon went up and we were really under it, yeah, we've flown the aircraft, we've integrated them with radios, and we're going to do our first inert weapons drop on the 29th.

17:22Amazing. All right, so can you walk me through the differences of Quarter Horse and Dark Horse? Yeah, so Quarter Horse is the prelim vehicle to Dark Horse, and some people have misunderstood this as a diversion in the roadmap, and it is not a diversion in the roadmap. So if we step back, Dark Horse being a Mach 5 airplane, there's a particular propulsion architecture as an engineer that you might find exciting, which has three components. It's a pre-cooler, a turbine engine, and a ramjet, all with a single flow pass. So the air going through all three of those. Historically, turbine engines don't get up to Mach 3, which is required for lighting a ramjet.

17:52So you've used rockets to do this. If you use a pre-cooler in front of the turbine engine, to use a marine term, you can too fast, too furious, that turbine engine, get the turbine engine up to Mach 3, which allows you to light the ramjet and fly, you know, Mach 3 to Mach 5 on a sustained cruise at that speed. So the purpose of Mach 2 was to demonstrate with the pre-cooler that I can get the engine up to Mach 3. Because everybody knows it's been well proven that a ramjet will work at Mach 3 to 5. We fire them on missiles all the time. But nobody's in flight gotten a turbine engine to fly at Mach 3 for two minutes or so with that pre-cooler.

18:22So the purpose of Mach 2 was to demonstrate that. What we discovered is when you have an unmanned aircraft that carries 12 ,000 pounds of payload and can hit Mach 3, there is utility for that right now. That is a product in and of itself. So not only does it advance the propulsion architecture for Dark Horse, but it provides a capability to the warfighter today. So it's a both-and scenario. So as we branch this product into the warfighting community, we are going to continue on the propulsion development for Dark Horse at the same time. I also think you said something interesting earlier about the fact that you're building the plane itself, but you're agnostic to the software that goes into it.

18:54Can you explain why that's important? Yeah. So, I mean, if you look at how the Department of Defense, Department of War right now is purchasing unmanned platforms, they have intentionally segregated the purchase of the autonomy suites and the vehicles. They want to be able to buy the brain and the plane separately. This goes back to sort of some negative experiences that the department's had with vendor lock-in with aircraft in the past. And so for us, we said, hey, we have enough hard challenges on the aircraft to focus on. We're just going to be a truck manufacturer. So what we do is we build the vehicles, the hardware, and then we build up to something called the AGRA standard.

19:23This is the API interface layer that the Air Force has published, sort of the public standards, thinking of like Legos, where it says, as long as you build your vehicle software to this, we can adopt Anduril's brain. Northrop's brain, Shield's brain, and I can go to the department and say, hey, I can use any of the autonomy packages that you want. I have not predisposed to anything. You can just purchase the plane and we'll adhere to that. And so we have decided to focus just on the vehicles. There are plenty of people performing in the autonomy space, and we do basic autonomy. We don't do the mission autonomy, but nobody's doing what we're doing in the hardware.

19:51So we're just staying focused on what we're best at, which is the vehicles themselves. And being best at vehicles, when do you think the hypersonic flight will be? Yeah, I mean, it's a great question. There's sort of two sides to this. One is demand from the customer, and the other is the physics and the economics. The physics and the economics, there's no reason we couldn't do it before the end of the decade. The real question is, does the department want that? How does that compare to the Mark II vehicle? So to be determined, but there's nothing really standing in front of us other than just decisions from ourselves and our customers.

20:14That's amazing. So what are the testing facilities available like for testing the aircraft? This is probably the biggest challenge we see. I was actually in D.C. yesterday talking to the administration about this. Historically, aviation and high-speed systems have been the domain of the primes. And those test regimes have come inside of major programs with AFRL, ONR, DARPA, et cetera, classified programs. And so there's a really tight integration on the ranges and these program offices. What you haven't seen is a new company come out of nowhere as a commercial entity and show up at the range with their homemade widget that the government didn't spend and say, hey, I'd like some range time.

20:46So it's been a bit of a challenge. I don't think anybody's at fault here. We take a step back, right? I was at Andrew back in 2019. The sort of innovation curve started on the software side and the low-cost hardware side. So the degree to which you've seen the dib come around on AI and other things, that's been years of, like, everybody getting to know each other. But that really high-end test for systems on, like, classified ranges has just begun to experience companies like myself. And so there's a big learning here, and I think you can maybe parallel path this to what Elon had to go through in Kwajalein firing rockets with the FAA and everybody back in the early 2000s.

21:18This is the same thing that's happening with flight. Andruil and Fury, as an example, as a new entrant, is a part of an active program of record. So they're able to get on the range as a partner with the Air Force. They didn't build fury and try and, you know, push that aircraft in. And so our go-to-market motion here has been a little bit different. And this has been one of the things that we're working on and learning with the government at the same time. We only have a couple more minutes here, but I want to talk a bit more big picture. Let's talk about the geopolitical stage a little bit. So, you know, we know China has tested hypersonic glide vehicles.

21:43Russia claims to have operational hypersonic weapons. Is the U.S. actually falling behind? I know we're hearing that a lot. What are your thoughts on that? Yeah, I mean, look, it's hard to say. I think one thing we know for sure, at least with China, is China is out testing us. And if you just derive testing to outcomes, like we're certainly not winning. And this goes back to the ranges. And I think we don't do ourselves any favors right now by artificially like tying our hands behind our back, by being so risk intolerant. You know, our premise is being very hardware rich of like I'm OK to laundart a plane.

22:13I have multiple planes. It's very much the Elon model of like as long as you learn something, you are advancing the program. Perfect is the enemy of good here. and I think that is inhibiting our ability to compete and eventually win in the hypersonic space. Absolutely, so you have the engineering ready. You said this before too, it's not a science project, it's an engineering project essentially, so you have the engineering ready to go, it's just capital at this point for you guys. Amazing, all right, great, okay. Last couple questions here, are we in a defense tech bubble, what do you think? I mean, that's a great question.

22:41I think possibly, probably, I mean you see this, but I think bubbles can be good, because there are people inside this bubble that are very real and rising tides, and we want the capital to flow to this sector because we need it as a nation, and I think there's a lot of good outcomes here for investors as well. There are also things where I think there's money going to some crazy things that are not going to return. But I will say in defense of this, this is arguably the most information asymmetric environment you can invest in. There's cultural barriers, there are classification barriers, and there's the details of war itself and understanding how does this department of war, how does this machine actually function.

23:14I think the only other parallel sector you could find that would have this much information and cultural asymmetry might be healthcare with some of the HIPAA rules, information lockup, the technical requirements to understand healthcare and to understand the science of medicine that makes investing in that space also difficult. So I think we might be in a bubble, but hey, I'm here for it. I think the nation needs it, and I think we're going to see a lot of good outcomes. Amazing. I mean, speaking of healthcare, I was actually standing here last night at a biotech party, essentially, on the floor, so having more fun with you, though.

23:42Last question. So if Hermia succeeds completely, what does that look like? Yeah, that looks like an American military that has maintained and established dominance in the skies, which is the anchor of American military might. We are an air power-based military. It looks like a world where autonomy is finally proving itself as the next step in aviation, no different than what we're seeing on the roads with Elon and Tesla. And it looks like a world where we're inching towards hypersonic flight across the Atlantic and Pacific. Thank you so much, Zach. It was amazing to have you here today. Really excited to see what you're building as a CEO with Hermia.

24:12So I'm really excited for your success as well. I'm going to send it back to Mo and Jack up in the studio. Thanks, Ria. Yeah, been a big couple of months on the U.S. side. We just talked to Hermes, but also on the Europe side for funding. A lot of very unique tailwinds, obviously the geopolitical issues that are happening over there. And also you don't have these five really dominant primes like you do in the U.S. in Europe. So we are seeing some big funding announcements really in the last couple of weeks. two from Germany, actually. Let's start with Helsing. So Helsing is a German-based defense tech company.

24:54They recently raised$1.8 billion at an$18 billion valuation. I wonder if they coordinated that$1.8 and$18 billion. Europe's largest defense tech funding to date. So Helsing has built or acquired strike drones and underwater gliders and autonomous systems, and they've really become the face of European defense innovation. Interestingly, Europe, Europe, Europe, but also J.P. Morgan and Goldman were in that deal. Yeah, you're seeing more of like J.P. Morgan's SRI business, their strategic resource initiative business, which was like that big trillion dollar announcement recently. Yeah, the Jamie Dimon.

25:36Jamie Dimon, like we're going to do a trillion dollars into the U.S. industrial base. A huge chunk of that is credit financing, but also a big chunk of that is equity financing. So it's looking like they're actually putting in very sizable checks. I actually don't know for sure if that's J.P. Morgan's SRI business, but I do know that they're very actively looking. On the Goldman side, I think, I mean, Goldman's been actively involved in these growth-type deals for a long time. Yeah, there's also different buckets of funds that go each way. But it is always interesting to see U.S. capital go into European, very sovereign European businesses.

26:14Another German company that had a big raise was Quantum Systems. And that is a German drone maker raised$1.2 billion at an$8 billion valuation to expand their autonomous systems and manufacturing. Again, that's two big raises from Germany. There's obviously Germany has a big industrial base and focuses a lot of funding, at least recently, on defense initiatives. So those two rounds actually close within two weeks of each other. So pretty big deal happening on that side of the world. All right. I'm going to flip us back to America for a second. So Niros, which is an L.A.-based defense tech startup that focuses on mass FPV drones.

26:57We actually recently had Soren Monroe-Anderson, the CEO and founder, on our podcast. So they secured an Army contract, U.S. Army contract, that's worth up to$500 million for their Archer FPV drones. Now, this is a very big signal because the Army is effectively saying that they're offering these mass production contracts to startups, and particularly a company that was founded just a few years ago. I mean, I think this would be unimaginable, not even that long, even a few years ago. So what does this tell us? So I think a couple of things. Ukraine has fundamentally changed Pentagon thinking about how expensive and attributable drones are and how they fit into warfare.

27:37And, you know, it's very clearly, you know, the military, our military embracing commercial production at speed. And then, yeah, I think so. So on our show, Soren actually said something really interesting that kind of stands out. So one of the things that he highlighted was how far behind, and let's just go back to what we were just talking about with Zach, how far behind we are with China's drone manufacturing capabilities, which is easily, and this is according to the story now, I haven't fact-checked it, but he said easily China's drone manufacturing capabilities is about 100 million a year.

28:08And the U.S., and not only that, they're also supplying most of the components to Ukraine and Russia. And if you look at the American kind of supply chain by comparison, it's only like a few hundred thousand drones at best. So obviously there's a big gap there and a lot of room to make up. What's your take on the common criticism that we hear from investors that drones, especially these very small, inexpensive drones, are commoditized? Yeah, that's a good question. I actually asked, I talked to Soren about this. And what he said, and again, I haven't deeply looked into this, but he did say that, like, that is a common critique.

28:50And there's also the common critique that there's, like, a ton of different drone companies. So it's, like, to your point on the commoditization piece. But he said when it comes down to it, most of these companies haven't actually fielded the technology. They're not tested. And most of them don't actually work as well as they're supposed to on the field. So I do think at the end of the day, there are a lot of requirements that the military has, and these specs are not always easy to maintain in a battlefield environment. So that's my simplistic answer. Yeah, and a lot of it is also the relationship that you have with the government and navigating those procurement processes.

29:26And the question always emerges of do we see consolidation down the road with very similar capabilities. But obviously, we're in early stages of building this technology. It's time for our next guest. Good. So we have Eric Chrisman joining us virtually. He's a partner at Altimeter Capital, which is a Boston and San Francisco-based firm. Eric, thanks for joining us. Hey, guys. Jack Moe. Good to see you. Sorry I couldn't be on the floor with you today. We can't hear him. Hi, Eric. We just had some audio difficulty with that last comment. Can you guys hear me okay? Yeah, now we can hear you great.

30:09There we go. Okay. There he is. Jack Mo, good to see you guys. Sorry I couldn't be on the floor with you today. Thanks for having me on. Yeah, we wish you were here. Although it would have been a tight fit. You're a tall guy. Yeah, Mo and I were debating. Are you a basketball fan? Of course. Okay. Is LeBron coming to the Warriors out in SF or not? What do we think? I hope so. Man, how fun would it be to have LeBron and Steph playing? I think it'd be fun for the NBA. I think it'd be really fun. We'll see. I don't know how much longer he's going to drag it out for. Yeah, I know, right? It might break during the show.

30:42So you can be the Shams of the show if you get a text. Hey, feel free to cut me off and go live if it does. There you go. So, Eric, let's talk about Altimeter. You guys have historically been software investors, and you're known for companies like Snowflake and Uber and Meta. So tell us a little bit about how you've now, I mean, maybe transition is the wrong word, but how are you thinking about the defense landscape? You guys have done a lot of really interesting deals recently. Yeah, you know, I'd say Altimeter is really a generalist investment firm, right? We're looking to deliver outlier returns.

31:19And, you know, since I joined the firm almost four years ago, we have built out this practice. We made large investments into SpaceX and Anderol and Castilian and Hadrian and K2 Space and a number of other companies. And really what we saw was, first and foremost, incredible entrepreneurs and talent kind of, you know, building incredible teams to go after these opportunities. And then we just saw that there, you know, was, you know, great opportunity in these markets. And so we viewed that, you know, not as many investors were paying attention to it and you had great talent going after it. And that there was just a fundamental shift with AI and autonomy and different type of systems that were going to be required.

32:05and teams coming out of the Palantirs and the SpaceX's and the Tesla's that had proven that they could mass manufacture asymmetric, unique products to fundamentally just deliver better capabilities to customers at more reasonable prices and at scale. And so for us, we get excited when those things all converge. And where do you think we are in this cycle? because we see equity markets, at least some pockets are at all-time high. The AI trade is big, obviously. In the private markets, defense tech and space are, I would say, lofty. The valuations are quite lofty. So you probably don't get the same deal you would have got two or three or four years ago when you started investing in these businesses.

32:51But what do you think? What's your take on where the state of the market is in terms of the cycle? yeah look i think we're i think we're early if you just look at the adoption of this technology both on the ai side and on the defense side if you're talking about you know pure ai companies that are that are delivering software more like an open ai or an anthropic that stuff is just diffusing itself through through the economy right and you're seeing the infrastructure build out which is a leading indicator to um try to satisfy the demand that is that is very clearly there and you know, ROI that these products are delivering and services are delivering.

33:28And on the defense side, same thing, right? The vast majority of the budget, which is increasing, is still going to the, you know, large legacy primes. And we're just starting to see this next crop of companies really get to scale. And I think that shift is, you know, a durable, multi-decade sort of transition period. So we still feel like we're early on in that transition. you know yes I think the best companies you're you're always kind of they're always a discount on the future value of them it's going to be you know the haves and the have-nots but yeah that that's that's a little bit of how how we're feeling about it.

34:08So Eric a few years ago you said something that has stuck out to me and I honestly continue to say quite frequently which is so a few years ago you said to me that the last 10 years we were in a software super cycle and the following 10 years, we're going to be in a hardware super cycle. Do you still believe that? And what does that mean?

34:32You know, I do believe that. I think we're seeing it both across, you know, if you look at, you know, for AI and you think about that stack from fuel to different types of energy to chips in the data center and networking and everything that is really required to serve tokens, right? There's clearly a massive hardware and CapEx super cycle that we believe we are early in. And then especially on different parts of the economy and in defense as well, right? We are just seeing a massive sort of demand for these new products and new systems, whether these are, you know, rockets or satellites or missiles or drones or robotics, which is still really early, right?

35:29If you think about what certain companies are working on and all different types of form factors on robotics, we still haven't even seen really the beginning in that. And so I really think we are at the beginning of a super cycle there. Yeah, at least it's clear to me. What do you guys see and what do you think? Yeah, I think we, I mean, clearly we are in the midst of it. We just had this conversation. You brought it up as well. But at the beginning of the show, we were talking about how only 1 % of defense budgets go to startups. And that is pretty consistent from, you know, years past. So right now we haven't seen the growth in the, you know, in the actual programs.

36:10But that doesn't mean that in two years that 1 % can go to 5 % or 10 % and maybe we're building the tech now ahead of the Pentagon really putting a demand single for actual dollars going to startups. Yeah, and I think on that, right, the budget continues to grow. But if you do look at SpaceX, you look at Palantir, you look at Andrel, you look at Castilian, you look at K2 Space, you look at Saronic and Hadrian and other companies. Do you just name all your portfolio companies? Just about. But not all of them. Of course, there's others. You know, you guys were talking about Neros earlier. I know you had Hermia's on before.

36:55There's a lot of incredible companies that are growing very quickly. Yeah. And so the size of the budget is so massive, it can still feel like, oh, it's only it's only one percent. And it is going to take time. But I think these companies are are durably, predictably growing and they are scaling to real programs and they are delivering real capabilities that, you know, customers are excited to field. And, you know, it's OK that it's not going from one percent this year to five percent next year. But it is, you know, these companies are growing. They are delivering unique asymmetric capabilities.

37:26They're ramping up capacity to put, you know, really interesting products in the hands of customers. So is it going to be equally shared amongst the entire sector? Of course not, right? No market works that way, but these companies are growing a lot. So Jack was just talking about Europe. So I'm curious to get your perspective. Like, how are you guys thinking about the opportunity set in Europe? Honestly, specifically within defense tech? Yeah, look, I think we're seeing very clearly an increase in NATO spending as a percentage of DDP across all those countries for various reasons, whether that is because of the because of the war in Ukraine, because of maybe their worry on are they going to get deliveries of products from from U.S.

38:21companies. And I think also just sovereignty. I think they want to have their own sovereign capacity and capability. And so you are seeing a lot of companies who are growing very quickly over there as well. And you've seen it both in the public markets and the private markets in Europe. And so seeing a lot of growth. We don't spend as much time in Europe, but there's very clearly some awesome companies that are getting built out there. OK. We have some breaking news. We have some breaking news. LeBron? Some LeBron breaking news. We got LeBron is going to the 76ers. Two-year contract. Kind of lame.

39:01I mean, Maxie, Jalen Brown, Embiid, they need some leadership to get Embiid on the court every night. Honestly, it doesn't matter. It's Knicks back-to-back. Okay, it's Knicks back-to-back anyway. Yeah. Go Knicks, go Dubs. I mean, that's a pretty stacked roster. Good for them. But Billy? I don't know. Kind of random. them i go back to cleveland go to the warriors that that news just come out yeah that happened five minutes ago so mid mid conversation you really teed up the uh the news break for us but i've always wanted to do that on on live tv their first this is our official breaking news yeah uh okay as a knicks fan how you feeling i feel great i mean this summer i think i mean was the i mean i i think everyone said the vibes in new york city were absolutely perfect.

39:51They were never, they've never been better. People have been nicer to each other. You walk by someone and they like are saying, hi, how are you? Like, I mean, actually, honestly, a lot of that has just, a lot of that has gone away. But up until, through the Knicks run, up until the championship and maybe like that week after, it was a spectacular, spectacular time to be in New York City. So hopefully we can recreate that. I was out there, I was out there for the game that Trump went to. What was that game, Game three or game five? Yeah, game three. It was the one that you guys lost, but... The vibes were not good there.

40:23But, okay. No, but I would say leading up to the game, the vibes were incredible. Yeah, it was a tough loss though. There was a special buzz in the city. Yeah, yeah. Okay, well let's talk about your existing portfolio. Okay, so you've invested in some key names. Andrel, Castellian, Hadrian. And, but let's start with Andrel. So it's become the defining defense tech company of the generation. Why did Altimeter, I mean, what did you guys first see in that investment? Maybe let's start there. Yeah, first and foremost, the founding team is really special, right? Brian and Trey and Matt and Palmer, obviously, and the team there are just a special group of individuals.

41:06I think they had a really unique point of view and the audacity to go after it. And so we had a ton of conviction and excitement about about them. And then we did fundamentally believe that there was a better way to do this. They were starting to have some interesting traction. But really, our investment was centered around the team and the opportunity for bringing autonomy to the Department of War and for building, you know, new, unique asymmetric. I use this phrase a lot, like unique asymmetric products to the Department of War that were really focused on the future of what future warfare was going to look like and deterrence, what was necessary there.

41:54And then how they were thinking about R &D and pre-funding using private capital, these products, and how they were selling them to the government. It was a combination of those things that got us really excited. And look, they beat every plan they've ever put in front of us. And the thesis was really they're going to get stronger at scale and they're going to be able to deliver more value to their customers at scale. And that's really all happening, which is really fantastic to see. Yeah. How do you think about margins with defense tech companies? The primes are operating about 20 percent gross margin, even less on the operating margins.

42:33how what do you think these new defense tech companies can achieve in terms of profitability? Yeah, I think the existing primes, you know, because of the cost plus structure are capped on the margins that they can have in their business. And so that's a structural thing for them. The beauty of Andrel and other private companies is much fewer of their contracts or programs are our cost plus. And so they're firm fixed contracts. And so they do have better underlying unit economics, quite a bit better, which, again, you're delivering unique asymmetric capabilities that are more aligned to where the future is headed and what's necessary for deterrence.

43:16And then you also have fundamentally a lot more, a lot better underlying unit economics, which I think makes it a much more interesting investment and why you are seeing private capital pour into these companies. So, Andrew recently raised$5 billion. There's a Series H at a$61 billion valuation. I'm sure there's another round that's about to be announced in like two hours. So, Brian Schiff said publicly this month that it's bad to IPO in the middle of a hype cycle and that defense tech valuations are overheated. Do you agree with that? You know, I think what Brian was getting at there, And I'd have to go back and listen on the context on, look, these guys are really great fiduciaries for all of their investors.

44:05I think they have always raised at valuations lower than they could have. And they've been really thoughtful and diligent about that. And I think what he was getting out of not going public in a hype cycle and some of these things is regards to, hey, we want to continue to deliver great returns for our investors at all these moments in time. And sometimes if you go public, you can really maybe pop and then come back down and some things around there. So, look, I trust Brian and how he views the market and how he wants to deliver returns for all shareholders, employees and investors aligned. With regards to a bubble, I think.

44:47Look, it's somewhat of a feature, not a bug across, especially across private markets. When there is large opportunities and disruption and innovation across industries, you are going to see investors allocate a lot of capital to those markets. And not every company is going to be successful, but incredible companies are going to emerge. And you see this in every cycle. And so, look, ultimately, as an investor, you have to do your job. You have to earn the right to partner with the companies that are going to be the few couple of breakouts that are going to capture the vast majority of the profits and the returns of any industry.

45:27And so I think there's always these cycles of, you could call it bubbles or boom and bust, but it's really you just see a lot of capital flow into certain areas. a couple of really special companies that emerge that are durable compounders and a bunch of companies that don't make it. And that's OK. That is the risk that we all take. That is the risk that investors take. And that's the risk that entrepreneurs and teams take. So I don't know. It's a little more nuanced than that, if that makes sense. And happy to discuss more about it. But I think everyone is well aware of those dynamics. And that is, you know, that is the power law nature, especially on the venture capital side of private markets.

46:14Is part of that idea that regardless, obviously you want to see a company execute, but regardless of execution, a company that wants to compete for a program of record, a big defense contract, just needs a big balance sheet. So it's almost like they, to get a seat at the table, they need to have raised a billion dollars. For example, does that go through your kind of mindset that capital ends up being a moat here? Capital is certainly a moat, especially in certain industries where there is a lot of CapEx. And even if it's OpEx, even if it's people, right? Like capital is absolutely an advantage in a business.

46:56It allows you to, one, signify durability and stability to your customers who are ultimately trusting you with things that are going to take maybe years to deliver. They want to know you're going to be around. They want to know that you have the capital to invest in, the team, the infrastructure, et cetera, to deliver. It's a signal that, oh, other people really believe in you and have skin in the game. and we're not the only ones keeping you afloat as a customer. Now, it's also important that customers are paying for products and you can't just have private capital keeping these businesses afloat forever or investor capital keeping these businesses afloat forever.

47:34But you do need that to bridge them to being a standalone durable business that is thriving on customer revenue. And so, you know, I do see, yeah, I do see bits of that. Yeah. Eric, let's talk about Hadrian. So I know that's another large position of yours. And I know you're a big, big fan of Chris and team. Tell us a little bit about what they're doing. They're, you know, attempting to rebuild the U.S. manufacturing base. But tell us a little bit about that company. Yeah, Hadrian, special company, Chris, special entrepreneur. And if you think about the defense industrial base, one, a lot of it is aging out, but it's made up of, you know, large primes and then a lot of thousands of different types of shops.

48:33And fundamentally, if you look at some of the marquee programs across the Department of War, whether these are especially submarines and in shipbuilding, but you can kind of go across some of the big programs and they're far behind. They are way behind schedule. They're way over budget. and fundamentally when you look at what's going on there there's just a massive gap in terms of worker hours required to deliver these products and so how do you ramp up the capacity and start to get a little bit more or a lot more efficiency to close the gap to get these things back on track And so what Chris and the Hadrian team are doing is they are building significant manufacturing capacity and they're using technology to get a lot more utilization and efficiency out of these machines.

49:30And so, you know, if historically, whether you're talking about, whether it's CNCing or assembly, et cetera, you're talking about, you know, two, three, four people to one machine. And then you're talking about 10 % utilization on that machine. Like, that's really inefficient. and Hadrian has built a lot of interesting technology to allow them to have you know four four machines being operated by one person and then they're getting you know 40 50 60 utilization so it's just a big decoupling of people to machines so they're getting a lot of a lot of leverage which just allows them to ramp a lot more capacity and get a lot more throughput to deliver a lot quicker on these big programs and reskill or retrain or repurpose workers to get them ramped up using this technology.

50:29So it's a really incredible sort of company. And what they're doing is critical as this underlies the entire, whether we're talking about boats or rockets or satellites or missiles or submarines. right they all need this industrial base to support the build out of those products. What do you think has to be true for a factory business to get a software multiple? And I'm kind of wagering a guess here that a lot of these businesses on the new manufacturing side are probably getting multiples that look like software multiples and correct me if I'm wrong. Not quite software multiples and I you know I guess I guess it depends how you think about the comp, but ultimately like what needs to be true, you have to have a special underlying, you have to have phenomenal growth.

51:16You have to have, you know, a durable large market opportunity to go after. And you have to have like fundamentally incredible underlying union economics. And why did we initially get excited to invest in Hadrian a little over a year ago was we finally saw or we saw that, oh, we are seeing the decoupling of a worker to machine. So we were starting to see operating leverage in the business in a way that you don't see in as many of those companies historically. And so we believe that this is a company that is going to continue to get more efficient over time, is going to continue to see a decoupling of humans to machines, which is just going to allow them to have a lot better underlying margins, right?

52:04Like that's really what it comes down to is, you know, high growth, durable growth, and better margins than the incumbents or the traditional companies that you would traditionally comp them to. And what is Hadrian's role in a world in which most new aerospace and defense or defense tech startups are looking to vertically integrate as much as possible? Yeah, I think, look, they work with a lot of those companies. A lot of these companies, many of which we're investors in, they do vertically integrate most of the time out of necessity because they can't get something from the supply chain. If they could, they would prefer to buy it.

52:52And so there's always going to be partnerships between Hadrian and those companies. And the more that the industrial base can scale up to support those companies, I think the less that they will need to vertically integrate everything. And then, look, as we talked about earlier, if you still look at the vast majority of the spend in this sector, it is going to the large primes who are in the dire situation where they really need companies like Hadrian to partner with them and support them to get their programs back on track. And by the way, the customer is still going to need these products that they're delivering.

53:30It is not a zero sum game here entirely. And those companies and what they're making are going to continue to be important as these other companies scale up. And so I do think your Hadrian is really going to be helping the existing primes and these large programs that are critical for the country get back on track and also supporting the Neo primes scale up their, you know, their capability as those companies are rapidly growing. And yes, super capable coming from the SpaceX and the Tesla, et cetera. And so they are doing a lot themselves in-house and will be, but don't need to be doing everything.

54:11Yeah. Let's wrap real quick with Castellian. I want to just talk for a few minutes about those guys. So two SpaceX founders, Brian and Andrew, they're building hypersonic missiles. Sean as well. And Sean. They're building hypersonic missiles out in El Segundo. Within a very short period of time, they're already testing and scaling production. You co-led the Series B, I believe, a$350 million Series B with Lightspeed. Tell us about that company. What did you see there? Yeah, incredible company, really special, not only founding team, but broader organization. A lot of who come from SpaceX have proven their ability to deliver really unique products in scale manufacturing there and other companies as well.

54:55What we saw there really was from a macro standpoint, there was a lot of money going into hypersonics and missiles. There really wasn't anyone delivering the quantities at the price point required as we looked at the future of what was going to be necessary for deterrence as we think about where things are headed. And, you know, this team had really built and scaled Starshield and a lot of the government and classified business or SpaceX. They had an acute understanding of the of the need and how to solve for it. And so unbelievably large market opportunity. If you look at a lot of the spend of or a lot of the revenue, the spend of the Department of War and the revenue of customers, there's a lot of missiles.

55:52And if you could have a hypersonic delivered at scale and at cost, there's really insatiable demand for that. And it's a very asymmetric capability that can be used to deter and prevent, you know, a lot of adversaries from, you know, maybe things we wouldn't like them to be doing. So that was how we thought about it. Special team, incredible, incredible technology that they're building. And then really the only team we believed that could pull it off.

56:28SpaceX, what do you, how much do you think the, of course, I'm the space guy, so I have to always bring it at the end back to SpaceX. How much do you think the broader market, both on the private and, I guess, some of the public plays here, are dependent on the success of SpaceX's stock in, call it, the next nine months or 18 months?

56:56i don't i don't know if i'm like i don't know if the success of any other company is necessarily dependent on what spacex stock does um right like i i think great companies whether that's an andrel whether that's a castilian a hadrian a k2 you know um blue origin pick your pick any company like i wouldn't say is that a new ultimate report go company yeah they just raised their ass it's not um um but i wouldn't i don't think what spacex stock does materially is gonna make those companies successful or unsuccessful right like they're in they're they're in control of their own destiny. They have to execute.

57:51They have to deliver on, on, on what their customers need them to. They need to hire great people. They need to execute. So I don't, I don't really think that any, any of these companies are, are, you know, at the whim of SpaceX's stock. I think people might view that as a proxy perhaps for the value of these companies, but I don't worry about that too much. Eric, leave us with some words of wisdom. What have you learned over the last few years of investing in defense tech or lessons learned?

58:31What to avoid, what to lean into? I think ultimately you are earning the right to partner with incredible entrepreneurs. So I always come back to the people. I don't know if that's a satisfying answer. I don't I don't know if if that's that's what you guys are looking for. But it is the truth. Ultimately, people build companies. And so I think it's really about the team, the people getting to know them, understanding what makes them tick. What's their unique insight and why do they believe that they are going going to win and what's the plan? And so I fall back on that a lot, or I don't, I wouldn't say fall back on that, but lean on that a lot and focus on that a lot is everything that all these companies are ultimately going to deliver.

59:15It's just an output of what these teams are going to come together and do. And so I think that's where we spend a lot of time. And then, so, yeah, I mean, that's been reinforced time and time again is great entrepreneurs build great companies. and it's sometimes as simple as that. Yeah, very well said. Eric, thanks so much for being with us. This is great. I'm sorry, LeBron. Appreciate you guys having me on. Yeah, sorry about LeBron. Brutal. All right, next up, we have Dan Wright, CEO of Armada, a full-stack edge computing and infrastructure company that brings compute, AI, and processing to austere locations.

59:58Recently raised$230 million at a$2 billion valuation. So excited to have Dan on the show. Hey, guys. How are you? Hey, Dan. Great to see you. How's it going? Good to see you, too. We wish you were here with us in person. I wish I was, too. We could be talking about LeBron there in person. I was shocked. I did not see that coming. I thought maybe the Cavs are the Heat, but not the Sixers. Yeah, the Sixers have a roster, though. And it's a story that hasn't been written yet. It's not the heatles or the returns. It's a new one. Exactly. It's a new story. And he's probably just going to try to win a championship with every team.

1:00:43The space, defense, and basketball update. I think that's what it has to be. Dan, tell us about Armada. What are you guys doing? So Armada is the hyperscaler for the edge. We are bridging the digital divide and bringing the latest AI models, the latest compute, the latest GPUs to the 70 % of the world. world that the cloud providers aren't focused on. If you look at a map of the world, there's only about 30 % of the world that has the big hyperscale data centers, and then there's 70 % of the world that has been sort of left behind. And so we're catching that part up, bridging the digital divide so that you have distributed intelligence, you have AI everywhere, wherever it's most needed.

1:01:23And walk us through that product stack. If someone buys an Armada product or a... What are they actually getting? If I'm a customer of Armada, what can I buy? And what does that kind of typical customer set look like? yeah so we approached it full stack so we have hardware software ai the shorthand i like to use is that it's ai in a box wherever you need it and it comes in the form of a galleon which is a ruggedized data center that you can take the latest models whatever models you want to use or your own models, employ them on your sites, fine-tune those models to your data without having to send the data to some faraway data center that could result in latency, security issues.

1:02:14We give her all of that. It's faster, cheaper, more secure than any other alternative. But the product itself is a galleon, these modular AI data centers. And typically what will happen is a customer will say, hey, I need one. We can deploy within days. Like I was just at Ray Summit in Paris with one of our customers in the Middle East. When some of the data centers got hit with the conflict there, we shipped one of ours out in six days from initial call through it's on the ground. And then within 30 days, they said, hey, we need four more of your galleons. And then you can just scale up with demand.

1:02:50Are you referring to the recent AWS data center attack in Bahrain? Yes. That was a missile strike. Maybe talk more through data centers becoming an infrastructure vulnerability now with adversaries looking to go after that piece of infrastructure. Yeah, I mean, I think it's just a wake-up call. Well, we've been talking about this for a couple of years in terms of the need for distributed, resilient infrastructure. And just like from a first principle standpoint, it makes sense because data is distributed. Now about 80 percent of data is generated outside of the traditional hyperscale data centers at the edge because there's so many drones, cameras, robots, technologies that are creating these data sensors.

1:03:46and then also, you know, energy is distributed. We know that energy is one of the most significant bottlenecks in terms of this huge AI rollout that's going on. And so it makes sense from that standpoint, but it also makes sense in terms of not just having like one big target. And we have this problem in the U.S. as well, right? And we've been talking about it in terms of, you know, Texas and Virginia have almost all of the data center capacity in the U.S. Well, the same problem exists in other parts of the world. Unfortunately, in the Middle East, we've seen that in real time and in the news with some of these data centers getting hit.

1:04:25And so, you know, now the thinking has very much shifted there and across the world to having more resilient, distributed, sovereign AI infrastructure that can be deployed in lots of different places. And then another benefit of our system is that it's mobile. There's galleons. They're like ships. That's the reason we call them galleons. They can go anywhere. And because of the fact that we have partnerships with Starlink and others that bring the connectivity, we literally don't even need Viber in the ground now. We can put them right where they're needed. Can we talk about when you thought Armada was a space business?

1:05:01Yeah. So, okay. When we first talked, Dan, this is probably two or three years ago, A lot of the story, at least a lot of the story in my mind, was that Armada is being built off the backs of Starlink, Starlink connectivity, and that's how you get connectivity to the edge. And I used to argue with my coworkers that that made Armada a space business. And it was this unique use case. Armada wouldn't work and the Galleons wouldn't work without Starlink connectivity. So it was this new, unique use case that was space-oriented. How has that evolved? How has satellite connectivity evolved over the last couple of years?

1:05:43Maybe what percentage of your modular data centers are connected via Starlink or maybe even Amazon Leo? Yeah, you definitely weren't totally wrong. I mean, we are a space business in a sense that we are assisted with what's going on in space. And then the edge is constantly getting redefined. And there are actual use cases for what we do in space, which we could talk about if you guys are interested. but the thing that we saw when we started the company was that the whole world was going to change completely in the next few years and one is obviously connectivity with leo and geosatellite connectivity obviously starlink's the dominant player there providing internet everywhere that's as good as fiber in the ground and at the time we started the company starlink was really more focused on consumer and then they went into enterprise and government but the other thing that's happened is the technology has just gotten way better everything's faster um and there's you know different types of terminals now they've got ones that are even so small you can put them in your backpack or strap them to your ski rack and take them work you want um but then the other thing that we saw was that data is exploding at the edge and that there's no good way to process all that data unless you bring the infrastructure to the site, to the oil rig, to the mine, to the battlefield, wherever it's needed.

1:07:08And one big reason for that is this focus on sovereign AI, which we saw coming that people would not want to send all of their data to the cloud. They also, the other thing that changed is around that time, ChatGPT was coming out, which is like the first big large language model that got brought adoption. And now, you know, at that time, XAI didn't exist, Anthropic didn't exist. But we knew that there were going to be more models like that, these really powerful, larger models. And it's very expensive to run those things in the cloud on an ongoing basis. And, again, most of the data people will not want to send to the cloud.

1:07:45So what they're going to want to do is take the latest models, fine-tune it to their own proprietary data sets, and then use it for inference to solve real-world problems. One way that I describe what Armada does is when I'm talking to somebody new, it's AI in a box, but it's real world AI. AI that solves problems out there on the edge for the people that are working on the rigs, at the mines, the soldiers, the first responders on the front lines when a disaster strikes as our customers. What's been the most interesting, coolest, most remarkable deployment of a Galleon that's kind of made you step back and been like, wow, this is exactly why I'm building this company?

1:08:31So just like personally, another reason why I wanted to start Armada and one of the reasons why we named the company Armada is my grandfather served in World War II. and his ship, St. George, was hit by a kamikaze at the coast of Japan during World War II and he almost died. A lot of people did that. And now, you know, I think about what we did in World War II to win the war and a lot of it was around re-industrialization, innovation, being able to build the things that we needed to build to win that great conflict. And we're in a situation today where we're effectively in a Cold War with China.

1:09:13And increasingly, there's going to be this competition around this AI race. Whoever wins that wins everything. It all depends on whether. And so I wanted to make sure that the person who's in the next great conflict, if it continues to evolve and there's conflicts like we're seeing now throughout the world, has the latest intelligence and the ability to use their data in the moment. in that split second before the really bad thing happens, before the threat hits. And so when we deployed with the Navy last year on the USS Cooperstown for 17 days, one of our galleons, and we were using it to run the latest, those cutting-edge AI models, air gap completely secure at the edge, and then processing data from drones in the middle of the ocean, I was like, wow, we've made it.

1:10:09Because that had never been done before. You think about the consequence. If you have one of those on every Navy ship and stockpiled in strategic locations like the Arctic, like the South China Sea, what that means to American prosperity, national security, and the ability for the ultimate armada, the U.S. Navy, to continue to protect us around the world. That was a big moment for me. So that was, I think, the deployment. We've had lots of cool deployments ranging from the Arctic to the desert in Saudi Arabia. That was the one where I was like, okay, here we go. Yeah, that's definitely a full circle moment.

1:10:50Would you ever build a smaller edge computing node? So instead of a shipping container size, maybe the size of a mailbox or something that you can be more nimble with? We already have. We already have. So we have something now called a beacon that's the size of a suitcase. And the nice thing about that is we work with a lot of companies where you got to get a quick win because it's new and just make people's lives easier. So as an example, like we work with a lot of energy companies. You can take a beacon, put it at one of their wells, do automated leak detection, which otherwise humans have to do.

1:11:31and they miss stuff all the time and it takes weeks and there's lots of consequences from that. And it's just a pain. They have to go to like thousands of wells in the middle of nowhere and check these things. Automating that is your quick win. To kind of speed things up, we've come out with this beacon, which is literally the size of the suitcase. So I want to talk real quick about sort of the infrastructure opportunity because over the last few years, the attention has all been on the foundational models. Do you think that the longer term investment opportunity is better in the infrastructure side of compute?

1:12:08Yeah, that's a tricky question. I mean, I think you're obviously seeing that some of the best model companies can have these outlier, you know, outcomes, power laws in full effect with the, you know, the anthropics and, you know, the X AIs and those. Which, by the way, I saw a really interesting tweet. I think it was, a few days ago, someone just said, hey, what if one of these, what if an open AI or Anthropic ultimately failed? There's never been in history, and again, didn't fact check this, but it was just an interesting comment. Never in history has there been so much capital concentration in one or two companies across the entire ecosystem.

1:12:51What would that impact if something were to happen to one of those companies and they didn't work? Because you're right, Like the scale and the valuation change has been like incredible. Like, I mean, nothing like we've ever seen before. Yeah, we're also seeing revenue growth from those companies on a trajectory we've never seen before, too. For sure. And I think what you're going to see is those model companies will have some great outcomes. But it's going to be very concentrated in a few, kind of like you're saying, Mo. And then it's going to be hyper-competitive. Right. And so I think a lot of the best outcomes will come in at the lower levels of the stack, the infrastructure, because, number one, there's a lot of room to innovate there.

1:13:38You know, a lot of the chips that are still being used and the infrastructure that's being used, it was not designed for these models. right so you know the kind of centralized gigawatt data centers were not designed for that world um at least you know the ones that uh you know i'm talking about in that 30 of the world um and you know there's opportunities to innovate at really every layer of the stack in terms of the the cooling the and we're seeing that change now with liquid cooling you know we're seeing new new types of chips like you guys probably saw the launch from etched earlier this week which is I think the first one to be released that is totally new, totally new company focused on that since the launch of ChatGPT.

1:14:23And then obviously what we're doing, we look at it and say, OK, well, if everybody else has built kind of the infrastructure pre that revolution and it only covers 30 percent of the world and we can be the new hyperscaler for everything else and call ourselves hyperscaler for the edge. There is no limit on that opportunity. It's massive. And the edge is constantly being redefined. and expanded. And so, um, yeah, it'll sound self-serving, but I would definitely say I would bet on infrastructure. Uh, and I think it's a really good bet. Yeah. Uh, what is the most acute component bottleneck that you are seeing on the ground right now when you're trying to build a galleon, for example?

1:15:08I mean, so the hardest thing right now is actually the power. Um, And it's largely because of all this backlash that's happening in terms of data centers, traditional large data centers. It's happening around the country. You're seeing data center moratoriums, things like that, protests. But we look at our kind of situation as we're the antidote to all of that. We're like all the benefits with none of the drawbacks because we flip the script where you can actually bring the infrastructure to existing power wherever it is. and we don't even need to pull from the grid. We can use behind the meter power.

1:15:46But the biggest bottleneck by far, I think, is power. And then in general, the infrastructure is a bottleneck because people have been relying on these big construction projects where you have to take years until you see any value. And then a lot of times those projects never actually happen. There's like an epidemic where they're announced and then nothing happens or something starts and then it stops and never gets built. And so the beauty of what we're doing is that we can, it's like parking. We manufacture these things as manufacturing versus destruction. It's much easier from a permitting standpoint.

1:16:22And then you can just deploy them wherever you have existing power. So it's all about speed. And that is, I think, going to continue. That bottleneck around power is not going away anytime soon. And so, you know, we got to find a different solution to solve that problem. By the way, speaking of manufacturing, I know you just signed a partnership with Johnson Controls as part of your funding, your recent funding round, the$230 million at the$2 billion VAL. What does that partnership look like? Yeah, so we've been working with Johnson Controls also pretty much from the beginning of the company. and they are one of the largest, you know, most experienced manufacturers that has a global footprint.

1:17:08They are all over the world. The announcement that you mentioned is that they made a strategic investment in our round. We're launching Galleon Forge One to do continuous production of these galleons, including the ones that the Leviathans that are like two megawatts and quickly scale into the hundreds of megawatts. and we're doing that to make sure that we've been to stay at a race. Because again, we just talked about the bottleneck around traditional data centers. This is like the solution to that problem is you just manufacture these on an ongoing basis. And then the nice thing with that facility is we are starting off with 500 ,000 square feet of capacity and then it's going to have about 500 new jobs.

1:17:53But we've already talked to Johnson Controls about we're going to need more. And they have more. They have more at that site. We also have a site that we'll hear more about in Dublin where we deploy with them all over the world. And then we also have the ability, for example, like we're expanding very quickly in Australia. So I think by the end of this year, we'll see a switch on a manufacturing line even in Australia, certainly soon. And so we can do that wherever there's enough demand. And that really is a unique thing that is enabled because of the scale of a Johnson Controls, but then also because of what we bring to the table in terms of just this differentiated approach to infrastructure.

1:18:40And I think a cool thing about that, we're talking about World War II, it is sort of a re-industrialization story. They were using that manufacturing facility to build air conditioners for a long time. And then it turns out being in the AI business, the AI infrastructure business, is better than being in the air conditioner business in the current world. And so we're re-industrializing, taking that space, using it to build what we need to win this AI race now. The AI market and also defense tech market, which I'm sure a lot of your customers end up being Pentagon-adjacent customers. But we've spoken a lot about ships, fleets, and armadas on this call.

1:19:24Have you seen the Odyssey yet? Not yet. I've read it. I've got to go see it now. Did you see it? I have a ticket booked for the front row of an IMAX 70mm. So I will come in to work bloodshot and eyes bloodshot. So we'll see. Dan. That is a tough seat. Let me know how it is. Let's check it out. I actually, I'm very curious what that view looks like. Okay, Dan, 10 years from now, Armada is a multi-hundred billion dollar company, maybe multi-trillion dollar company. You're listed here at the New York Stock Exchange. What does that Armada look like? What does that company look like? What are you guys doing at that point?

1:20:07Wow. I mean, I think we will have completely redefined the edge and really realized the vision of the company at that point. You know, we were the first to deploy in the state of Alaska, you know, a data center at any level of scale. They don't have data centers in Alaska for emergency response. You know, we were the first to deploy in the desert of Saudi Arabia with Iran. We were first to deploy with the Navy offshore. Those firsts are going to keep happening, but it's only going to speed up. And then what's going to happen is just like you talked about, you're going to have connectivity that's as good as fiber in the ground everywhere.

1:20:47and we're going to be the first mover on the infrastructure and have compute available anywhere, bring the latest models anywhere. And I think eventually that will lead to space. Like, you know, people talk about data centers in space. There are real use cases there in terms of, you know, certainly intelligence, you know, backup. You're going to need to do mining and manufacturing, you know, on the moon and then Mars. It's going to be a wild time. So 10 years is a long time, though. It's going to be a brave new world. And I think you're going to see Armada being the hyperscaler or the edge, but the edge being not what people have thought about, you know, traditionally in terms of the edge of these existing networks.

1:21:31But instead, it's the edge of the world. 10 years is a long time. And, you know, Travis Kalanick wants to digitize the physical world. So we may be just digital versions of ourselves in 10 years talking to you. Who knows? No kidding. And that physical AI, I met Jansen recently, and I was talking to him about that. It is going to change everything. I mean, I thought that announcement was great because mining is one of those industries where there's so many different opportunities to automate using AI and robotics. And that's what's going to happen across every industry. It's going to be pretty good to see.

1:22:06Well, Dan, thanks so much for being with us. Pleasure. Yeah, great seeing you guys. Thanks a lot. All right. See you soon. Thanks, Dan. Yeah. When are you seeing it? What am I what? When are you watching the hours? Oh, I'm going on, it'll be in the middle of a work day actually. Oh, interesting. It's on the Tuesday of my birthday. Oh, okay. All right, all right, your birthday's on Tuesday. Yeah. The following week. That's a great birthday. It's a great birthday activity. And it's literally row B. Okay. I've seen some pictures of it, you get like a distorted view. Like the head becomes like twice as long as it should be in an IMAX theater.

1:22:40We can't wrap without talking about space. I know, you know, with you, Mr. Space. So should we talk about Falcon 9? Yeah. It's probably one of the bigger pieces of news, if not maybe the biggest piece of news that's coming out of the space industry over the last month. Yeah. Like, so what's going on? I know there's some worry. Yeah, this is something that has been, right, this is something that has been kind of talked about over the last couple of years, but really started to heat up in the last couple of months where SpaceX has appeared to slow down Falcon 9 launch sales past, call it 2028. So into 2029 in the future as they ramp up Starship.

1:23:20That's in two and a half years as they ramp up Starship and try to move all their Starlink launches and deployments onto Starship. So without Starlink, Falcon 9 economics don't really work. And the idea is they try to ramp down at launches. The entire space industry, the startup ecosystem to the primes, rely on Falcon 9 to get to orbit. Particularly these rideshare missions, which allows a very small company to start prototyping and launch a very small payload to orbit. So I would describe the state of the industry right now, the state of satellite operators' psyches right now as a mild freakout into unease, into maybe a little bit of denial that Falcon 9 won't actually be there.

1:24:13There is a lot that we don't know yet, but it seems like that is on the horizon. Yeah, and I mean, I think it does make sense, right? I mean, we don't know what's going to happen, and obviously this could get reversed, but SpaceX ultimately has a massive endeavor in front of them in putting up the Starlink constellation, the next generation Starlink constellation, and obviously the compute satellites. I always flip back to that S1 TAM slide when you look at how much of the market, how much of their future market sizing is coming from enterprise applications versus space-based services. and so little of their revenue, future revenue, is going to come from these Falcon 9 rideshare missions.

1:24:56But what do you think is the path forward? What happens from here? Let's just say, let's just kind of get a game theory, a scenario where the Falcon 9 indeed, this is indeed a real freeze or a permanent freeze. Yeah, and that would be that Falcon 9 isn't available in 2029. Correct, correct. Is there enough capacity out there to meet that? Yeah, I think, well, I think first of all, again, SpaceX hasn't commented on this or confirmed this. So it's all speculation at this point. But if you're a satellite operator, you have to start planning for getting, if your satellite can't get to orbit, you don't have a company.

1:25:31So it is definitely worth working through what that means. I think it's possible that they open up more capacity. Maybe that is a request from Jared Isaacman or someone in the government. maybe if you know obviously they will to some extent try to move some of those payloads on to starship if it makes sense and it's a lot of times it doesn't make sense and then you're talking about new launch vehicles coming online that's new glen that is terran r nova we have neutron and also eclipse you have vulcan as well can they get there and have any meaningful cadence ramp by 2029 the answer is that they a lot of them most of them except for for new glenn hasn't haven't launched yet yeah they will launch in the next six months i'm confident in six to nine months but it is very hard to uh ramp a launch vehicle over the first couple years everybody goes through growing pains, if you're a SpaceX rocket lab or a Firefly, and that doesn't give satellite operators much hope that those rockets will be there in a meaningful way in two and a half years.

1:26:46I mean, Blue Origin is raising funding around right now. I mean, we talked about it briefly with Eric. Do you think there is a chance that New Glenn can really meet this capacity in the next five years? I think if any rocket is going to do it, it's going to be that rocket. They obviously just had this massive explosion on the pad, so they got to get back to the pad first. But it was the start to the New Glenn program was one of the most successful starts to any rocket program. They were able to land two boosters, reuse one of them without the engines, and they have a lot of boosters in manufacturing production right now.

1:27:25So if anybody can do it, they can do it. They certainly have the access to capital to do it. Again, a lot of the time with this, it's not about how much money you have. It just takes time to iterate at the beginning of a rocket program. I think the better question for industry is, are they going to open up Rideshare? And is that something, it's obviously not the most profitable mission for SpaceX, But is that something that Jeff Bezos and Blue Origin are willing to do by 2029? Yeah. We shall see. We shall see. We shall see. All right. Well, we're back here not that long from now. So August 4th is our next show.

1:28:10So definitely mark that on your calendars. We'll be back not too long from now. And then we're going to do two shows in August, actually. So we're increasing the cadence. And then we're going to go from there. but any last words? No, this was great. And also we have a new floor correspondent. We have a new floor correspondent. Had an awesome interview. It was actually really nice. It gave us a little break. Yeah. Take a second. Take a sip of water. It's very cool to be able to look down and see the interview happening on the floor. Amazing. Well, thank you guys for watching. You'll notice that we have a new QR code here at the bottom of the screen.

1:28:43If you scan that QR code, it'll take you right to our sign-up page for our defense tech publication, Tectonic. So please sign up if you haven't already. and we will see you guys in a couple weeks.