Anduril's Strategic Onshoring of Supply Chain and Its Implications for Defense Tech Stocks

The defense technology sector is undergoing a seismic shift as companies like Anduril Industries prioritize onshoring to mitigate geopolitical risks and secure long-term margins. With global tensions escalating and supply chains under scrutiny, the strategic realignment of manufacturing and sourcing has become a critical factor for investors evaluating the sector. Anduril's aggressive onshoring initiatives, particularly its $1.5 billion-funded Arsenal-1 complex in Ohio, exemplify how defense firms are redefining resilience in an era of uncertainty.

Anduril's Onshoring Playbook: A Blueprint for Resilience

Anduril's onshoring strategy is anchored in its "hyperscale" model, which leverages commercial off-the-shelf components for 90% of its products to reduce lead times and costs, according to Washington Technology. This approach aligns with the U.S. Department of Defense's push for supply chain diversification, as outlined in a DoD release. The company's 5-million-square-foot Arsenal-1 facility in Pickaway County, Ohio, is a cornerstone of this effort. Located near Rickenbacker International Airport, the complex will produce autonomous systems, drones, and other military technologies, creating over 4,000 jobs and serving as a prototype for flexible, software-defined manufacturing, as reported by CTR Investors and The Dispatch.

By prioritizing domestic production, Anduril is addressing vulnerabilities exposed by global supply chain disruptions and rising tariffs. For instance, the 2025 U.S.-China trade tensions have pushed many defense firms to localize critical components, a trend highlighted in a Morningstar report. Anduril's focus on redundant suppliers and infrastructure investments-such as new hangars and taxiways at Rickenbacker-further insulates it from geopolitical shocks, a dynamic also noted in an Investing.com analysis.

Geopolitical Risk Mitigation: A Sector-Wide Imperative

The defense sector's onshoring surge is driven by a confluence of factors: heightened global defense spending, shifting alliances, and the need to hedge against geopolitical volatility. European defense budgets, for example, are projected to grow at 6.8% annually through 2035, outpacing U.S. and Asian counterparts, according to the Morningstar report. This spending boom, fueled by the Russia-Ukraine war and China's military expansion, has created a fertile ground for firms that can deliver advanced systems like AI-driven drones and cyber defenses.

For investors, onshoring acts as a buffer against supply chain shocks. A 2024 study of 75 global defense companies found that over 80% experienced stock volatility during high-uncertainty events, such as the Russia-Ukraine conflict, according to a PMC study and a related ScienceDirect article. However, firms with diversified, domestic supply chains-like Anduril-tend to exhibit greater stability. This is particularly relevant as the U.S. DoD seeks to reduce reliance on a few dominant contractors (Lockheed Martin, Northrop Grumman, etc.), opening opportunities for agile firms like Anduril to capture market share.

Margin Expansion and Investor Sentiment

Onshoring is not just a risk-mitigation tactic; it's also a driver of margin expansion. By using commercial components and scaling production through Arsenal-1, Anduril aims to achieve cost efficiencies that traditional defense contractors struggle to match. This aligns with broader trends in the sector: defense tech stocks with high-margin, innovative offerings-such as Kratos Defense and Karman-have surged over 100% in 2025, reflecting investor confidence in their ability to navigate fixed-price contracts and geopolitical headwinds.

However, margins remain under pressure from fixed-price contracts, which now dominate the sector. These contracts, while reducing government risk, often compress profitability for contractors. Anduril's hyperscale model, which emphasizes automation and modular design, could provide a competitive edge here. By reducing labor and material costs, the company may sustain higher margins even in a low-margin contract environment.

Sector-Wide Implications and Investment Outlook

The defense tech sector's transformation is reshaping investor priorities. Momentum investing has gained traction, with firms that combine technological innovation and onshoring strategies outperforming peers. For example, Palantir Technologies and RTX Corporation have seen strong revenue growth due to their alignment with AI and advanced weaponry trends. Similarly, Anduril's focus on autonomous systems positions it to benefit from the DoD's investments in expanding domestic production capacity.

Yet, risks persist. Budget constraints and shifting government priorities could disrupt long-term contracts. Investors must also weigh the sector's exposure to fixed-price agreements and the potential for overvaluation in high-growth stocks like Kratos (forward P/E of 149x).

Conclusion: A Strategic Bet on Resilience

Anduril's onshoring initiatives represent more than a tactical response to tariffs or trade wars-they signal a fundamental rethinking of how defense technology is produced and delivered. By anchoring its supply chain in the U.S., the company is not only mitigating geopolitical risks but also positioning itself to capitalize on the sector's spending supercycle. For investors, the key takeaway is clear: firms that combine onshoring, innovation, and scalable manufacturing-like Anduril-are likely to outperform in a world where resilience is the ultimate competitive advantage.