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Cheap Drones Are Upending the Defense Sector. These 4 Battle-Tested Stocks Are Leading the Charge.

The Iran war proves that America’s ability to spend heavily on elaborate weapon systems no longer cuts it in conflicts dominated by cheap drones.

Key Points

• Cheap drones, exemplified in Ukraine and Iran, are challenging the U.S.’s traditional military dominance based on expensive, high-tech weapon systems.
• The U.S. is rapidly increasing drone investment, with the DAWG budget rising from $225 million to $55 billion, fostering new defense industry opportunities.
• While drone start-ups thrive, traditional defense firms adapt via venture funds and focus on advanced autonomous platforms like CCAs and subs.

Cheap drones have tilted the battlefield against America’s high-cost military.

For decades, the U.S.’s ability to spend the most on the best, most exquisite weapon systems led to American military hegemony. In the air, the F-22 Raptor fighter jet, costing some $150 million, can knock threats to a billion-dollar B2 Stealth Bomber jet out of the sky before the enemy sees either plane, while Patriot missiles, costing $4 million a pop, destroy enemy cruise missiles aimed at U.S. bases or allies.

At sea, the U.S.S. Gerald R. Ford aircraft carrier, costing $13 billion and powered by two nuclear reactors, can launch hundreds of missions a day, while multibillion-dollar nuclear submarines carry cruise missiles 1,000 feet beneath the waves. And on land, M1 Abrams tanks, costing millions, can fire three-foot-long shells at the enemy while rolling 40 miles an hour, protected by multiple layers of armor including ultradense depleted uranium.

But if the wars in Iran and in Ukraine have taught the U.S. anything, it’s that all this military firepower doesn’t assure battlefield domination. Cheap drones, often costing as little as $10,000, now make it possible to hold superpowers at bay for years or drive them to the negotiating table to end an unpopular war.

In Ukraine, homegrown drones have destroyed thousands of Russian tanks and military vehicles, killed tens of thousands of troops, and turned the Russian invasion into a multiyear stalemate. In Iran, Shahed drones managed to shut the Hormuz Strait—the world’s most important transit point for oil—by making the risk of crossing too high for tankers. And the U.S. has been unable to destroy all the decentralized manufacturing for the Shahed—it’s like trying to swat 100% of the flies at a summer picnic.

Iran’s victory, and it should be considered a victory given the regime’s survival, ability to control the strait and world energy prices despite being pummeled by the U.S. and Israeli militaries, shows that the Pentagon needs to adapt—and adapt fast.

A host of new companies are going to help the U.S. fill the gap, gunning for business that traditional defense companies can’t—or don’t want to—fill. Drone-focused start-ups will compete with old-guard defense companies to provide the weapons of postmodern war, upending what was once a straightforward sector for investors. Companies with the ability to move quickly, adapt and keep costs low should thrive, while those that can’t could struggle in the years ahead. Suppliers able to boost output to meet insatiable demand for parts, displacing parts coming from China, will do even better.

“You’re looking at a step change in military philosophy,” says Bill Birmingham, managing director at Rex Shares, an asset management firm offering the REX Drone exchange-traded fund, which is down about 7% since the ETF launched in late October. The push for American “drone dominance has opened the door to so much innovation.”

Just how much that innovation is needed has been on display in Iran. While the U.S. and Israel were able to kill key political and military leaders, knock out conventional defenses, and destroy the Iranian navy, they couldn’t prevent Iran from using homegrown drones to terrorize Gulf states and shut the Strait of Hormuz. Iranian drones left America unable to keep oil flowing from the Middle East without a peace deal, imperiling the world economy.

The cost advantage of the new weapons of war is too big to ignore. The U.S. fired hundreds of million-dollar interceptor missiles in days, which will take months to rebuild, leading to fears of depleted stocks, denials of depleted stocks, deals to expand missile production, and the president invoking the Defense Production Act. It is a contributing factor to President Donald Trump’s proposed $1.5 trillion fiscal 2027 defense budget, up about 50% from the 2026 defense budget.

In July, Defense Secretary Pete Hegseth unveiled America’s plan to achieve dominance by quickly getting drones into the hands of the American soldier. His announcement followed Trump’s July executive order calling for American industry to beef up its manufacturing capabilities. The Defense Autonomous Warfare Group, or DAWG, which was created through a Biden-era drone initiative originally called Replicator, is set to see its budget explode from $225 million in fiscal year 2026 to $55 billion in fiscal year 2027.

William Blair analyst Louie DiPalma estimates the U.S. market size for lower-cost drones at nearly $100 billion annually, including those that can still be carried by a soldier. There will be additional spending for more sophisticated drones, including General Atomics’ Predator and Reaper, and Boeing’s new autonomous Ghost Bat, a collaborative combat aircraft, or CCA, being developed with the Royal Australian Air Force to fly recon or bombing missions with or without manned fighter jets.

Even before the war with Iran started, a group of companies gathered in February at Fort Benning in Georgia to compete in a drone competition, Gauntlet I, designed to put low-cost, one-way attack drones into the hands of American soldiers.

The winner wasn’t American. It was Shrike, a first-person-view strike drone that uses a 12-mile fiberoptic tether to prevent jamming and provide the operator with clear imagery. It was built with Ukrainian drone tech and scored a near-perfect 99.3. Ukraine is making millions of drones a year and could make millions more if the parts were available.

Still, “despite four years of unprecedented visibility into Ukrainian battlefield innovations, and the recent war in Iran, Western forces have not institutionalized key lessons into doctrine, force structure, or procurement priorities,” says Mick Ryan, senior fellow for military studies at the Lowy Institute, an Australian think tank.

For the U.S., building drone-war dominance must start at home. To jump-start that initiative, the U.S. government banned nonmilitary drones from DJI, a Chinese manufacturer with 70%-plus market share. The ban wasn’t to protect America from the security risks of using Chinese technology, but to signal to American industry that the time had come to make, rather than import, the devices that will determine the outcome of conflicts in the coming age.

“We need to be a great manufacturing superpower,” says Ethan Thornton, founder of privately held Mach Industries, which uses flexible manufacturing to produce drones and munitions. “The gap between us and China is only increasing.”

A host of companies—new and old—will be vying to become those manufacturers. Many of them are private. Entrepreneur Palmer Luckey’s Anduril is the most valuable privately held defense start-up and aims to be the department store for the U.S. military, building weapons with off-the-shelf commercial technology, including drones.

Shield AI is merging artificial intelligence “hive-mind” tech with low-cost drones. Los Angeles-based Neros Technologies took second place in Gauntlet I with its Archer quadcopter. The U.S. military has deployed Virginia-based Napatree Technology’s drone interceptors to hunt other drones.

Investors have more than enough drone stocks to choose from—at least a dozen—but the best stocks are likely to be from the drones that have been battle-tested, says Byron Callan, managing director at Capital Alpha Partners. “The Good Housekeeping seal of approval is if [the drones] have actually been used in Ukraine.”

Four meet that threshold: AeroVironment, Aevex, Red Cat Holdings, and Swarmer. The latter three are recent start-ups, with the potential to grow into big business, but the risk that comes with companies that are only beginning to boost revenue.

Swarmer, which is connected to Blackwater founder Erik Prince, builds artificial-intelligence-based command-and-control software to link drones, letting one operator command an autonomous swarm. Its tech has been deployed hundreds of thousands of times in missions for Ukraine. Swarmer, which went public in March, has a market capitalization of $500 million and trades at 20 times 2027 revenue of $25 million. Only one analyst, Lucid Capital Markets’ Alex Fuhrman, covers Swarmer shares. He rates the stock Buy, and his $60 price target suggests a 33% rise from a recent $45.

Aevex’s Phoenix Ghost provides a kamikaze drone capable of loitering for up to six hours in the air while it waits for a target to appear. The company, which has a market value of $2 billion, went public in April, and its shares have traded in a range from roughly $17 to $42.

Part of the issue is the boom/bust cycle of Ukrainian demand. Roughly 50% of Aevex’s sales of $606 million will come from Ukraine in 2026, but those sales could dry up in 2027, according to Jefferies analyst Sheila Kahyaoglu, as Ukraine turns from a drone importer to a drone exporter. Despite the loss of Ukrainian business, Aevex’s sales are still expected to grow more than 10% between 2026 and 2027. Aevex is the cheapest of the four at roughly 30 times estimated 2027 earnings, and all nine of the analysts who cover the stock rate it a Buy.

Red Cat, which went public in 2021, makes reconnaissance drones, first-person-view attack drones, and drones that work when GPS doesn’t. Its maritime division also makes the Variant 7 maritime drone, which was modeled on Ukrainian technology. Red Cat trades at eight times 2027 sales of $218 million, and all the analysts covering the company rate the shares Buy. Clear Street analyst Brian Dobson sees the company benefiting from the DJI ban, and his $19 price target, up from a recent $10.50, is 10 times his 2028 sales target.

AeroVironment, which went public in 2007, was one of the first American contractors to bring hardware to the front lines. Its Switchblade loitering munitions have helped take out Russian tanks and other weapons, while its Raven and Puma drones provide real-time intelligence for warfighters on the battlefield. It is expected to have sales of about $2 billion in calendar year 2026 and $2.4 billion in 2027, and 17 of the 20 analysts who cover the $8 billion company rate its shares a Buy.

AeroVironment also has the benefit of making antidrone technology, which is becoming as important as drones themselves. That includes everything from radar jamming to edge computing—which untethers enemy drones from GPS—to low-cost drone interceptors. AeroVironment’s Locust lasers have already been deployed in Iran. The ‘directed energy’ weapon, which can be used on ships or mounted on a truck, can burn through the hull of an incoming drone. “We probably are pretty close to Star Wars…I don’t know how long before it’s hand-held,” says Adrian Helfert, chief investment officer of wealth manager Westwood Group.

Ondas is another beneficiary of higher spending on antidrone technology. Its reusable Iron Drone Raider system literally catches incoming drones in a net. It also supplies radio-signal jamming technology. Oppenheimer analyst Tim Horan rates shares Outperform and has a $16 price target, up from a recent $9, valuing the stock at about 17 times estimated 2027 sales. It isn’t expected to be profitable until 2029.

But with technology changing so quickly, buying suppliers, in a picks-and-shovels approach to the drone sector, may be the best way to bet on the nascent drone technology in the U.S., says Jefferies’ Kahyaoglu. Two of her favorites are diversified defense prime contractor L3Harris Technologies and Kratos Defense & Security Solutions. L3 is spinning out its missile business in an IPO expected later this year. That will give investors a new company that makes missile hardware, electronics, and solid rocket motors. Kratos is a drone leader, developing the XQ-58A Valkyrie, a collaborative combat aircraft, which won’t be disrupted by new start-ups making lower-cost guidable munitions. It also makes propulsion systems for drones and missiles.

Kahyaoglu’s target for Kratos is $80, up more than 50% from a recent $51. Kratos stock, at 50 times estimated 2027 earnings, trades like a high-growth drone company. L3 trades like a traditional defense prime at a reasonable 22 times.

Two start-ups supplying parts are Arxis and Applied Aerospace & Defense. Arxis makes highly engineered electronic and mechanical parts for any drone or missile platform. Wells Fargo analyst David Strauss rates Arxis stock Overweight and sets a $52 price target, up from a recent $46. He calls the company a “purpose-built industrial compounder,” meaning he expects it to parlay its cash flow into acquisitions to drive higher growth. It is priced for growth, with shares trading for about 54 times estimated 2027 earnings, which are expected to double from 2026.

Applied Aerospace, which completed its IPO in early June, supplies structural components for companies that make autonomous weapons systems. It’s so new that Wall Street hasn’t yet picked up coverage. Shares have struggled out of the gate, trading for a recent $18, below the IPO price of $20.

While the Iran war has put the spotlight on the shiny new toys, it also revealed the limitations of the established defense companies. Between the end of February and Trump’s June 14 announcement of an Iran memorandum of understanding to end hostilities, Lockheed Martin and Northrop Grumman stocks were down 18% and 14%, respectively. The iShares U.S. Aerospace & Defense ETF fell 4%, while the S&P 500 rose 8%.

Part of the problem is that the stocks were already priced for a lot of good news—the iShares ETF was up 57% in the 12 months before fighting in Iran broke out. The war also raised Democrats’ odds of retaking part of Congress in midterm elections, which could generate pushback on ever-rising military spending.

Iran’s Shahed drones might deserve credit for the declines, too. Just how many $30 million tanks does a military need if they can be ‘neutralized’ with a $5,000 quadcopter? A lot. While money will go to new drones, there will still be plenty for more advanced jets, ground vehicles, and boats.

“Views that drones will massively displace spending on manned platforms ignore institutional and political biases on military power,” says Capital Alpha Partners analyst Byron Callan. “Israel, Russia, and Ukraine, which are the three most drone-savvy militaries, aren’t abandoning manned weapons.”

That leaves a lot of potential upside for the traditional defense giants, which might not be able to—or want to—compete with start-ups rushing to strap explosives to quadcopters. The Air Force, for instance, plans to buy thousands of collaborative combat aircraft, sophisticated autonomous wingmen assisting manned fighter jets, helping maintain American air dominance. Autonomous subs and ships are also on the Navy’s docket. Many of those will be made by the usual suspects, including Northrop, Lockheed, and Boeing, with parts supplied by RTX and others.

While defense contractors might not be able to move at the speed of start-ups, they have capital, helping them function like a technology incubator. Lockheed has a venture fund, which has helped seed more than 120 companies since its founding in 2007. Lockheed recently increased the size of its fund from $400 million to $1 billion.

“Our investments help create a pipeline of cutting-edge technologies that create a resilient industrial base, drive growth, and ultimately help the United States and its allies deter the most pressing emerging threats,” says CFO Evan Scott. That fund has helped make Lockheed a favorite of Westwood’s Helfert, who recommends the stock.

Ultimately, war is a never-ending race to achieve technical superiority over the enemy. Drones of all shapes and sizes for land, sea, and air will proliferate for decades.

As the war with Iran has highlighted, the drone wars are just beginning

The move is being presented as zeitgeist rather than greedy rent extraction

For diehard fans, Sony’s move to call time on physical games for its PlayStation console means game over on a series of treasured habits. No more boxes — aka gamers’ trophies — to line the shelves. No ownership, removing the ability to lend or sell, with potential knock-on effects on second-hand retailers such as CeX of the UK and GameStop in the US.

Conversely, it looks like game on for investors in the Japanese tech and entertainment conglomerate, which counts gaming and network services as its biggest division by revenue. Digital games zap pesky costs for pressing and shipping discs, and mean Sony no longer needs to leave space for retailers to add their cut. Inevitably, games sold through the PlayStation Store will be more profitable.

Sony is presenting the move, which takes effect from January 2028, as zeitgeist rather than greedy rent extraction. Some 85 per cent of its game sales were digital in the quarter ending March 31. The Japanese giant is the first in its field to pull the plug on physical discs — ironically perhaps, for a company that only just stopped production of Blu-ray Disc recorders and reverted to faxes in the wake of a 2014 hack. But others are moving in a similar direction.

The latest instalment of the Grand Theft Auto franchise will be released sans disc. And tittle-tattle in the gaming community has it that rival Microsoft’s next-generation Xbox won’t have a disc drive, suggesting it too is preparing for a wholly digital future. There must be a fair chance the next PlayStation, due in 2028, will not have one either.

Sony shareholders could use a break. The group has had some spectacular fumbles. Its $3.6bn purchase of Bungie, the studio behind Halo and Destiny 2 — a would-be forever game that turned out not to be forever — resulted in mass job cuts and hundreds of millions of dollars in write-offs in recent years. Its stock is down 17 per cent so far this year.

Capturing additional profit on games must be handy for Sony given the high price of memory chips is raising the cost of all sorts of hardware. Fellow Japanese gaming group Nintendo has already flagged lower sales expectations for its Switch 2, which from September will cost an additional $50 in the US. Fatter software margins may allow Sony a little more leeway when it comes to pricing the next PlayStation.

There’s no doubt it’s a bold move; and one that has roundly antagonised the faithful: angst and petitions are proliferating across bulletin boards. Sony will also miss out on the inevitable nostalgia for retro that has seen Gen Zers amass vinyl. But still, this is one Sony shokku that its shareholders should be happy to take.

China Is Devastating the Last Stronghold of German Industry

Midsize companies that employ millions of workers are now shedding jobs and relocating overseas to cut costs

FRANKFURT—For decades, thousands of niche, world-class manufacturers that form the backbone of the German economy relied on an unassailable moat: unmatched quality. Now that moat is drying up.

The Mittelstand—a broad tier of midsize manufacturers, mainly specialized in capital and intermediate goods and reliant on exports—once thrived by making machines for factories everywhere. But China is now closing the quality gap and offering prices as low as half those of their European rivals.

As panic spreads among German manufacturers, layoffs are rolling through formerly prosperous towns and villages with no living memory of a downturn. The moment could become a political turning point for a country whose wealth was largely created by the Mittelstand, or “middle-class”—shorthand for the inner core of Europe’s largest economy.

For the first time in decades, Germany now imports more advanced capital goods from China than it exports there. Manufacturers are suddenly on the defensive, not just in China and elsewhere, but also at home. Many Mittelstand firms are idling workers, cutting jobs or shifting production, including to China.

Patric Burkhart, managing director of machinery manufacturer Aura, based in southwest Germany with 115 employees and around $30 million in annual revenue, said Chinese competition had surged over just the past six months, causing orders to dry up.

Aura makes heating equipment that is built into bigger industrial machines, such as presses, ovens and extruders—which make everything from plastic bags and window frames to car parts and snacks.

A Chinese competitor recently emerged in the market, creating strong price pressure, Burkhart said. To win projects with the incumbent German and Japanese manufacturers, he said, “I have to be very creative.”

German industry is losing more than 10,000 jobs every month, according to a May report by EY. Industrial output declined by around 10% between February 2022 and early 2026, with energy-intensive sectors plunging by more than 15%.

Germany’s trade balance with China in capital goods slid from a surplus of roughly 750 million euros to a €500 million deficit between mid-2024 and August 2025 on a 12-month rolling average, according to New York-based Apollo Global Management. Germany’s machine-tools exports to China slumped by around one-third in the first quarter from a year earlier.

If European policymakers don’t take tougher measures to protect industry, “you could see a very rapid decline of the German Mittelstand,” said Noah Barkin, senior adviser at the research firm Rhodium Group.

European leaders are seeking new legal powers to hit back at China. China’s overall goods exports to Germany alone have jumped 17% this year through May compared with the year prior, and those to the European Union have increased 16%, according to dollar-denominated data from Chinese customs.

China has increasingly leaned on manufacturing to drive economic growth following an epic property-market collapse. Facing weak demand at home and overflowing warehouses, factories are aggressively selling overseas, driving the nation’s trade surplus to a historic $1.2 trillion last year.

This evolution was a deliberate, state-backed engineering feat. Under its “10,000 Little Giants” initiative, the Chinese government funneled massive subsidies, tax breaks and state resources into thousands of specialized midsize firms, explicitly designed to replace Germany’s famed “hidden champions.”

There are still German companies that make products that China needs, said Barkin. These include Trumpf, a maker of lasers, and Zeiss, which manufactures optical devices used in medical machines and chip-making equipment. But Beijing is trying to address those dependencies and produce those goods.

When a manufacturer in Eastern Europe or South America sets up a new plant, they can now buy the entire ecosystem—the injection machines, robotic arms, dryers and cloud management software—directly from a single, unified Chinese vendor.

“China has already eaten much of German industry’s lunch and is preparing to start on dinner,” the Centre for European Reform, a London-based think tank, bluntly warned in a recent report.

Compounding the crisis are high energy prices and weak demand in Europe, deflationary pressures in China that lower export prices, and a yuan many economists believe is undervalued.

Competition is particularly fierce in sectors where scale matters, such as heat pumps or autos, said Clemens Fuest, president of the Ifo Institute for Economic Research, a think tank. More specialized firms are faring better for now. “It is hard to say where this will end,” Fuest said.

Mittelstand businesses, which long prided themselves on a die-hard free-trade ethic, have recently started requesting government protection from state-backed Chinese firms.

Chinese competitors already control one-third of global production in the machinery sector, said Oliver Richtberg, head of foreign trade at the Machinery and Equipment Manufacturers’ Association, or VDMA, a lobby group whose members employ one million German workers. The tipping point is fast approaching, Richtberg said: “If they get to 40% or 50%, we won’t have any levers left.”

The EU has launched a record number of trade cases against Beijing over the past two years, but those measures cover a fraction of total Chinese imports. Broader and tougher trade defenses discussed at a June summit meeting in Brussels will likely take a year or more to materialize.

Michael Suess, a longtime Siemens executive and now executive chairman of Swiss coatings manufacturer Oerlikon, said the German Mittelstand is in trouble mainly because of high costs at home and a new generation of family entrepreneurs he sees as lacking ambition.

“Yes, China is getting more competitive,” Suess said. But “Germany needs real reforms, we have to get out of our comfort zone.”

Still, over three-quarters of German mechanical engineering companies see competition from China as the biggest strategic challenge worldwide, according to a survey published in January by Hamburg-based consulting firm Infront.

Back at Aura, Burkhart said Chinese, Japanese and even German customers increasingly want him to manufacture in China. One motivation is cost. For Chinese manufacturers, there is also rising political pressure to transfer value creation to China.

Burkhart, who once produced exclusively in Germany, now makes 20% of his products in China. That share could increase to 70% if nothing changes in Europe, he said.

“We’re in a very sticky situation,” he said. “It is a historic change that brings the whole society under pressure.”

Geotechnical surveys have ruled out adding to the monument that is hosting the president on the eve of America’s 250th

President Trump spoke in front of Mount Rushmore on Friday ahead of the country’s Independence Day celebration, at the memorial honoring four past presidents that he has mused about joining.

The monument in the Black Hills of South Dakota has long caught Trump’s attention, even if adding his face to it is structurally impossible. This term, Trump has led an unprecedented effort to apply his personal brand to the nation, in public infrastructure, government programs and federal real estate.

Kristi Noem, the former South Dakota governor and Trump’s former homeland security secretary, once gave him a 4-foot-tall replica of the memorial, with his face joining the four presidents.

“Sounds like a good idea to me!” Trump said about the prospect in his first term on social media.

The monument is hosting fireworks for Trump’s visit, after a several-year hiatus.

The festivities come in the midst of a heat wave so severe that the marquee fair on the National Mall in Washington was closed for several hours on Friday afternoon.

Interior Secretary Doug Burgum, who is traveling with Trump to the South Dakota monument, has discussed Trump’s inclusion on it. He told Trump’s daughter-in-law Lara Trump on her Fox News show last year that there was room for the president. Asked recently in an interview with The Wall Street Journal about Trump supporters’ call for the 47th president’s face to be carved into the monument, Burgum didn’t rule it out.

“I’m sure that there are going to be a lot of people that are going to say we need to build something recognizing President Trump,” Burgum said. “But I think right now what he’s focused on is…fixing everything we have.”

Republican Rep. Anna Paulina Luna of Florida filed legislation in January 2025 that would direct the interior secretary to carve Trump on Mount Rushmore because of “his transformative impact on America and the historical significance of his leadership.”

Geotechnical surveys commissioned by the National Park Service concluded that the structural integrity of the granite in the region is fragile. Technicians monitoring the monument’s 140 microfractures have noted that further high-impact sculpting would risk catastrophic rockfalls, potentially destabilizing the sculpture of Abraham Lincoln.

The presidents were chosen by the sculptor Gutzon Borglum, who initially had grander plans for the memorial. The funds for the sculpture were appropriated by Congress, and lawmakers declared it complete in 1941 shortly after his death.

The monument features the first U.S. president, George Washington; Thomas Jefferson, the third president; Lincoln, who led the country through the Civil War; and Theodore Roosevelt, who spent time in the Dakotas and was chosen to represent development of the U.S.

A spokeswoman for the White House didn’t respond directly to questions about Trump’s efforts to put himself on Mount Rushmore. “President Trump will be remembered as one of the greatest and most consequential presidents in history,” said the spokeswoman, Taylor Rogers.

In Trump’s second term, he has sought to put his name and imprint on many things, from commemorative U.S. passports to the John F. Kennedy Center for the Performing Arts. Palm Beach International Airport will officially become Donald J. Trump International Airport this month.

In the tax bill passed by Congress last year, savings accounts for children in the U.S. were named Trump Accounts. Trump’s image hangs on banners at many federal buildings in Washington, D.C., a departure from past administrations.

Sriram Krishnan tells the FT the president is against a centralised regulator as AI backlash grows

Donald Trump will not establish a formal licensing regime for AI, the president’s departing AI adviser has said, even as the White House wields emergency powers to stall the most advanced models.

“There will not be an FDA for AI,” Sriram Krishnan told the FT in his first in-depth interview since leaving the administration last month, referring to the powerful US food and drug regulator.

“This administration, [the] president, from day one has been against burdensome, onerous, bureaucratic red tape,” he added. “We are not in the business of picking winners and losers.” 

Krishnan said setting up a centralised agency requiring “a team of lawyers before you can get a model out” would put “sand in the gears” of the AI revolution. “That is never, never going to happen under President Trump,” he said.

His prediction comes weeks after the US government made an unprecedented intervention on national security grounds to force Anthropic to withdraw its most capable model, Mythos, and hold up the release of OpenAI’s 5.6.

Krishnan, an Indian-born former venture capitalist who worked with Elon Musk before entering government, has been among the key advocates for light-touch AI regulation in Trump’s circle alongside AI tsar David Sacks.

Some in Washington blame the administration’s deregulatory zeal for a growing backlash against AI among American voters and within Trump’s Maga coalition, reflecting concern about data centres and the societal impact of the technology.

A large majority of Americans support stringent regulations to rein in AI, while at least 75 data centre projects worth approximately $130bn were disrupted by local opposition in the first three months of 2026, according to researcher Data Center Watch.

But Krishnan, who has worked to block state-level AI regulation and helped draft a White House framework for narrow child safety and content laws, laid the blame for the backlash squarely on the industry’s own “doomer” messaging.

The AI sector “has done a terrible job” of explaining the benefits of the tech, Krishnan said, such as advanced medical diagnoses.

Leaders of American AI labs “have focused so much on the dystopian narrative and scenarios, whether it is job loss, whether it is [existential] risk . . . that a lot of people are going: well, I don’t know if I want this,” he added. 

Voters, he argued, wanted to feel “they have a seat at the table and this is not just two or three companies becoming incredibly powerful and wealthy” — a sentiment the president has seized on. Trump recently pushed to get companies to donate equity stakes to the American people, and discussed the plans with OpenAI chief executive Sam Altman.

Despite warnings from Silicon Valley about this amounting to backdoor nationalisation, Krishnan supported the move.

“There are lots of questions about what form it can take . . . but I do think some way for regular people to feel like, OK, when I use this model, or when I see the graphs going up and I watch on CNBC, I am benefiting. I think that is good.” 

Americans, he added, “need to feel that AI is something which is empowering them”.

The 42-year-old, who entered the White House days after Trump’s inauguration in 2025, was one of a small group of Silicon Valley figures who moved to Washington early in the president’s second term to help the administration develop its approach to AI. 

A former Andreessen Horowitz partner, he spent his first 24 hours in office briefing the president and the National Security Council on the capabilities of China’s DeepSeek models and writing the phrase “we need to unleash American entrepreneurship” into a Trump speech that evening.

Among his strange duties as Silicon Valley’s translator in Washington, he said, was explaining Roko’s Basilisk, an internet thought experiment about a vengeful future superintelligence, “to a bunch of the cabinet”.

Over the past 18 months, Krishnan and Sacks pushed for a ban on “onerous” state-level AI safeguards, and a light-touch approach to monitoring advanced models for national and cyber security risks. The duo, who are close to Trump mega-donor Marc Andreessen, warned that throttling AI innovation with excessive regulation would help Chinese companies eclipse America’s leading models.

But more recently a series of new models with powerful cyber security capabilities have driven renewed momentum for the government to take a hand in controlling the technology.

OpenAI’s Altman last week said the government’s demand to limit the release of its latest 5.6 model was not “optimal”, while Silicon Valley investors warned against the creation of an ad hoc licensing regime in which frontier models must get clearance from the Trump administration.

Some accused the government of seeking to punish Anthropic, which Trump has called “radical left” over its clash with the Pentagon about the use of its AI in warfare — an allegation that Krishnan denied.

Krishnan has spent the past few weeks speaking to world leaders unnerved by Washington’s unilateral move to switch off access to Mythos. He supported Trump’s use of export controls to force Anthropic to temporarily suspend the model, but said the government took the decision “very, very reluctantly”, after safety concerns were raised by Amazon, which had found a vulnerability in the model.

“I think the government will always try to make sure our systems and our security [are] protected,” Krishnan said, adding that senior administration figures like vice-president JD Vance raised concerns about shielding critical infrastructure from advanced models. 

In the longer term, Krishnan argued, oversight of frontier models should pass largely to the industry itself, with a voluntary body or “clearinghouse” that includes large tech groups, chipmakers, and security companies that would seek to identify vulnerabilities “in concert with the intelligence community or the Department of War”.

Such a system would comply with a recent executive order from the president, which established a voluntary framework through which the US government would get 30 days to review a model before its release. 

But Krishnan warned that if cutting-edge AI tools were held back by the government for several weeks, “that would probably be bad for American innovation”.

The departing Trump adviser leaves the administration months after Sacks ended his role as AI tsar and is now recruiting AI engineers to help governments across the west develop AI policy. Krishnan added that US allies might seek to use “open weight” models with public training parameters that they can fine-tune.

“It is very concerning to me that we have these Chinese open-weight models that are good, and we don’t really have a leading American open-weight model yet,” he said.

Asked whether a future Democratic government could use the Trump administration’s unilateral use of export controls as a pretext to stall the rollout of AI, Krishnan said: “I don’t think about future governments. I think about this government and this moment in time.”

Offer from KKR and Bridgepoint subsidiary fails to win support from Ninety One, Aviva Investors and Fidelity International

Major shareholders have opposed a £5.7bn takeover of DCC by private equity firms, warning that the bid significantly undervalues the FTSE 100 energy firm’s growth prospects.

US private equity group KKR and Energy Capital Partners, a subsidiary of London-listed Bridgepoint, last month increased their bid for Dublin-headquartered DCC to £65.25 a share in cash plus £1.47 in dividends.

But even though DCC’s board said it would be minded to recommend the offer to shareholders, which was increased from the previous offer of £58, top investors have come out against the proposed deal.

Alessandro Dicorrado, a UK equity manager at Ninety One, a top shareholder, told the FT on Friday that he opposed the bid, adding: “I don’t like the price on DCC.”

Matt Bennison, head of UK equities at Aviva Investors, a top 10 shareholder, said the proposal “significantly undervalues” the business and that the asset manager “would be disappointed if the DCC board were to recommend an offer for the business at the level of £65.25 per share”.

“DCC is a company with many appealing characteristics — a strong and growing platform with a high return on capital and attractive cash generation. As a result, it is no surprise to see it receiving interest from potential acquirers.”

London-listed DCC, whose main markets are in Europe and the US, provides off-grid energy solutions such as liquid gas, while operating service stations and fleet services.

But any deal would mark the latest big departure from the London Stock Exchange in another blow to the country’s capital markets, following a series of private equity takeovers and defections to US exchanges.

Bennison said DCC’s “strong fundamentals mean that the company has multiple levers through which it can create significant value for existing shareholders over the coming years — organic growth, inorganic growth as well as an ability to return significant amounts of excess cash to shareholders via dividends and ongoing share buybacks”.

Alex Wright, UK equity fund manager at Fidelity International, one of DCC’s biggest investors, said that “we do not believe the revised proposal from the consortium adequately reflects our fair value of DCC and its long-term growth prospects”.

He added in comments made a few days ago that market sentiment “has been weak, largely due to previous concerns around the structural decline of its fossil fuel distribution business”.

Wright said “these fears are overdone” and that DCC’s “attractive valuation makes it stand out as a compelling recovery opportunity”.

DCC declined to comment.

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