Why Palantir and Elbit are top plays in the booming counterdrone market
Artist's conception of Lockheed Martin's Helios directed-energy laser weapon intercepting a drone attack.
The economics of modern air defense are broken. Counterdrone systems are one of the fastest-growing segments in defense. The reason is a simple imbalance: Cheap drones are overwhelming their expensive interceptors. Defenders facing saturation attacks are burning through million-dollar inventory, and the math compounds quickly.
Directed-energy weapons $(DEW)$ - primarily high-energy lasers and high-power microwave systems - flip this equation. DEW are now moving into procurement, shipboard integration and operational air-defense networks.
The Congressional Research Service estimated that shipboard, solid-state lasers can fire at a marginal cost between $1 and $10 per shot. For example, in U.S. Navy testing, the destroyer USS Preble used Lockheed Martin's (LMT) Helios laser weapon to down four drones in at-sea testing.
Israel, more than any other country, has moved furthest toward operational deployment: the Iron Beam, with Elbit Systems (IL:ESLT) $(ESLT)$ supplying the high-power laser source, was delivered to the IDF in December 2025 for integration into Israel's layered air-defense network, making Israel the first country to field what its defense ministry described as an operational high-power laser interception system.
The science of using focused energy to destroy targets has been explored for decades. What changed is the enabling infrastructure around it. Power generation, storage, beam control and thermal management have matured to a point where directed energy is no longer purely a laboratory proposition. These systems direct a laser to open fire, hold that energy on a target long enough to destroy it, and then continue to attack.
Estimates of the potential market for DEW vary widely, as they often do in emerging defense categories, but most point in the same direction: rapid growth from a still-small base.
Consulting firm Imarc, for example, put the global DEW market, which covers laser and microwave systems across all missions, at roughly $10 billion in 2025 and projected $35.3 billion by 2034, a compound annual growth rate of just over 15%.
Meanwhile, Precedence Research estimated the global counterdrone market, which spans every effector type used against drones, not just lasers, at $2.1 billion in 2025 and projected it to reach $19.1 billion by 2035 - a 25.8% compound annual growth rate from 2026 to 2035.
AI and sensors: the overlooked layers
Lasers get headlines. But the AI-powered detection and targeting layer is what determines whether it actually works. A high-energy laser that cannot precisely track a target moving at speed, or that cannot prioritize among dozens of incoming threats simultaneously, is just an extremely expensive light source.
This creates an investment angle that most coverage misses. The architectures required to make directed-energy systems operational depend on sensor fusion - the real-time integration of radar, electro-optical and infrared data - combined with AI-driven threat classification and engagement prioritization. Against drone swarms in particular, this computational layer is the key.
Palantir Technologies (PLTR) and Anduril Industries formed a consortium in December 2024 that brings together Palantir's Maven targeting and data-fusion software with Anduril's Lattice autonomy platform, which connects sensors and effectors across air, land, sea, space and cyber domains into a single operational picture.
In 2025, the U.S. Army selected Lattice as the fire-control platform for the Integrated Battle Command System Maneuver program, a counterdrone command-and-control layer meant to fuse sensor data, automate fire control and compress the detection-to-defeat timeline. Teledyne Technologies $(TDY)$, through its FLIR Defense division, represents another less-visible node. The company's Cerberus XL counterdrone system - described by Teledyne as battle-tested in Ukraine - integrates long-range 3D radar, thermal and optical imaging, and RF detection in a platform capable of tracking up to 500 targets simultaneously. It is designed to be effector-agnostic, meaning it can feed targeting data to kinetic, electronic or directed-energy weapons. That hardware-agnostic approach positions Teledyne as a beneficiary regardless of which terminal effector a given military selects.
Real constraints
Directed-energy weapons carry genuine operational limitations. High-energy lasers are degraded by atmospheric conditions - rain, fog, sand and smoke all scatter and absorb the beam, reducing effective range and time on target. High-power microwave systems are generally less vulnerable to rain, fog or smoke than lasers, but still depend on line of sight, range, beam control and the surrounding electromagnetic environment. Thermal management - keeping the weapon cool enough to fire repeatedly - remains an engineering constraint, particularly on mobile platforms.
Range is another problem. Israel's Iron Beam, for example, is designed to engage targets at roughly 10 kilometers (6.2 miles). That's effective for short-range threats, including drones, rockets and mortars, but it's not a substitute for defense against longer-range threats.
Which countries are actually deploying these weapons? Israel remains the clearest example of a country moving a high-power laser air-defense system into operational service. The U.K. and U.S. are close behind in testing and naval integration, but Israel has crossed the deployment threshold first. The December 2025 delivery of Iron Beam to the Israeli Air Force followed confirmed combat use of a scaled-down precursor system in October 2024, when Israeli laser systems intercepted approximately 40 Hezbollah UAVs. The urgency behind Israel's deployment timeline is inseparable from its operational context: Sustained, high-volume aerial attacks across multiple fronts have created exactly the cost-asymmetry problem that DEW solve.
The United States is not technologically behind - the Pentagon has multiple programs across all service branches - but it has been slower to deploy at scale. The reasons are structural. U.S. procurement cycles are longer and more layered than those in countries operating under active threat.
Russia and Ukraine have both deployed non-kinetic counterdrone systems at scale, especially in electronic warfare, while high-energy laser interception remains a separate and less mature category. The conflict has functioned as an accelerated stress test, compressing years of operational learning into months and validating or refuting assumptions about real-world system performance. That iterative pressure is what drives deployment timelines forward.
China's trajectory is harder to read precisely, but the pattern is one of internal development and rapid adaptation rather than reliance on external technology. Chinese defense publications and procurement activity indicate a multilayered approach that combines radar, electro-optical sensors, electronic warfare, and AI-driven interception - structurally similar to the Western model but developed independently.
The investment landscape
Leading U.S. defense contractors - Lockheed Martin, RTX $(RTX)$ and Northrop Grumman $(NOC)$ - hold established positions across high-end DEW development. But the investment story is more about how beams, sensors, fire control or software are integrated into deployable systems.
Elbit Systems, which supplies high-power laser systems for Israel's Iron Beam, is the closest thing to a pure-play DEW beneficiary among publicly traded defense firms. The company's backlog reached $28.1 billion at the end of 2025, up from $22.6 billion a year earlier, while its Iron Beam role is backed by a contract worth roughly $200 million from the Israeli Ministry of Defense. Lockheed Martin is also tied to Iron Beam, as a development partner for potential U.S. applications, a separate role from Elbit's supply of the laser source itself.
Stock investors should pay attention to the software and sensor layer. Palantir is benefiting from the broader defense shift toward AI-enabled targeting, data-fusion and battlefield-decision software. Teledyne, often categorized as an industrial-sensing company, is embedded in the counterdrone detection chain through systems already operational in active theaters.
The investment parallel worth considering is the shift that cloud computing brought to enterprise IT - where the cost and scalability advantages of a new delivery model eventually restructured the entire industry, benefiting infrastructure, software and integration players. DEW could similarly disrupt the defense sector. The winners will not be just those who generate the laser beam, but those who control the energy behind it and the intelligence that decides when to fire.
Jurica Dujmovic is a MarketWatch columnist. Follow him on X @JuricaDujmovic.
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June 29, 2026 08:15 ET (12:15 GMT)
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