Capstone believes that munitions supply chains, particularly for critical component parts, represent a significant opportunity for private equity investors. Diversifying and rapidly scaling the industrial base for munitions is a top priority of the Department of Defense (DOD). The Golden Dome missile defense initiative is also likely to be a catalyst for growth in the munitions space.
- Increasing munitions production is the DOD’s most significant defense procurement priority. This is underscored by the establishment of the Munitions Acceleration Council (MAC), the push for major multiyear contracts to vendors in order to more than double production of key munitions as quickly as possible, and the involvement of Deputy Secretary of Defense Stephen Feinberg.
- Private equity investors in the aerospace and defense (A&D) space should explore opportunities across the landscape of specialty component manufacturers embedded in munitions value chains. Current manufacturers are optimized for efficient, low-rate production and could use private capital to scale dramatically to meet DOD operational requirements.
- Key subsystems, such as sophisticated missile sensors, solid rocket motors (SRMs), and energetics, are caught in critical supply bottlenecks. Each subsystem also faces restraints for Tier 3 and 4 suppliers, who make components such as radomes, batteries, and interconnectors, that need to be resolved to hit production goals.
Expanding Munitions Production is a Key DOD Priority and Investment Opportunity
Capstone believes that munitions production is the highest defense acquisition priority of the DOD under the Trump administration. Significant funding and policy changes are underway to accelerate production, creating broad sectoral tailwinds that investors should position to capture. These efforts reflect long-held concerns by US military planners and have been gaining support over the last few years, particularly in the wake of the war in Ukraine and a potential conflict with China. Bipartisan support for replenishing stockpiles and re-investing in this area of the industrial base should create long-term budgetary stability and growth.
The MAC is the key industrial base initiative to expand munitions production across the DOD. The MAC convened major munitions manufacturers in June 2025 to discuss increasing production of key munitions by at least 2.5 times existing capacity; the Pentagon specifically wants to scale procurement of 12 in-production munitions and leverage public capital to accelerate those efforts. The 12 munitions being accelerated by the MAC include DOD staples such as the PAC-3 Missile Segment Enhancement (MSE) interceptor, the Standard Missile-6 (SM-6), the AIM-120 AMRAAM, and the Precision Strike Missile (PSM).
Initial efforts by the DOD and MAC will focus on expanding the capacity of existing suppliers to achieve the fastest results. However, deeply baked-in capacity constraints will necessitate the standup of alternative suppliers across the entire supply chain to meet DOD’s ambitious goals.
Congressional Dynamics
Congressional efforts are also underway to reduce the friction associated with the certainty required by companies and investors for major capital investments on single-year funding cycles. While the dynamic is true across the industrial base, Capstone believes that in the case of munitions supply chains, industry might get what it is asking for.
For example, in December 2025, the DOD launched an effort to get congressional appropriators to approve a multiyear munitions buy worth over $20 billion dollars. Multiyear Procurement (MYP) is attractive to defense contractors because it provides greater stability and government commitment to a program beyond the annual appropriations cycle; the FY26 National Defense Authorization Act specifically provided authorities for DOD to enter MYP contracts for key munitions such as PAC-3, THAAD, and LRASM.
Another mechanism that could benefit munitions manufacturers is reconciliation money, such as multi-year funding allocated by the One Big Beautiful Bill Act (OBBBA). The Office of Management and Budget (OMB) has released specific figures for the mandatory funding streams identified in OBBBA, which has $24.7 billion allocated for “resources for munitions and defense supply chain resiliency.”
Within that, there are many specific allocations that support the industrial base, such as $1 billion for the creation of next-generation automated munitions production factories, $500 million for the expansion of defense advanced manufacturing techniques, $200 million for investments in the solid rocket motor industrial base through the Industrial Base Fund, and many others that will drive investment in and across supply chains. Additionally, Capstone believes that money allocated to the Golden Dome initiative is likely to ultimately be channeled towards munitions production.
Understanding the Opportunities Across the Value Chain
Investors interested in capturing sectoral tailwinds around munitions production can find opportunities among lower-tier manufacturers in the munitions supply chain.
The highly complex design, integration, and production of a system are, and will likely remain, in the purview of the defense Primes and some high-profile defense tech companies. However, there has been dramatically less attention focused on the supply chain, which is no less critical. While integration and design are perceived as higher-value due to more discriminators and higher margins, lower-tier suppliers in the defense industrial base benefit from reduced competition, often serving as critical sole-source suppliers, and would benefit from increased investment.
The table below provides an overview of a notional munition supply chain with examples of inputs at various tiers. At the top of the supply chain are the prime integrators, who are the Original Equipment Manufacturers (OEMs) for the systems. Tier 1 suppliers are generally responsible for producing key subsystems for the munitions, such as solid rocket motors, missile seekers, and warheads. Lower-tier vendors tend to be more commoditized. There is typically far less Prime presence lower down the supply chain, and visibility down the chain tends to be poor. The unique market dynamics of the defense industrial base make lower-tier companies comparatively more attractive than their commercial peers.
Overview of a Munitions Supply Chain
| Tier 1 | Tier 2 | Tier 3 | Tier 4 |
|---|---|---|---|
| Seeker | RF/Microwave Sensors, Infrared Sensors | Transmit/Receive modules, IR Focal Plane Arrays, lens assemblies, hardened microelectronics, camera modules, radomes, and optical windows | Specialty alloys, advanced composites, gallium-based semiconductors, mercury cadmium telluride |
| Guidance, Navigation, and Control (GNC) | Flight computers and processors, Inertial Measurement Units (IMUs), Control Actuation Systems (CAS) | Hardened microelectronics, computing modules, digital signal processors | Semiconductor materials such as gallium arsenide or gallium nitride |
| Propulsion/Solid Rocket Motors (SRMs) | Energetics, motor cases, nozzle assemblies, igniters, safety devices | Energetics, composite cases, nozzle insulators, bearings, seals, mechanical components, valves | Energetics chemicals, such as ammonium perchlorate, specialty alloys |
| Airframe | Composite and metal structures, conformal antenna structures | Composite and metal components, precision castings and forgings, laminates | Advanced composites, carbon fiber, specialty alloys like aerospace titanium |
| Payload | Electronic fuzes, warhead casings and liners, energetics | Shaped charge liners, integrated fuze electronics, safe-arm devices, explosive filler, countermeasures | Energetics chemicals such as nitrocellulose |
| Power and electrical systems | Batteries, interconnectors, specialty cables | Specialty cables, connectors, battery modules | Battery compounds, silicon carbide, critical minerals |
Mapping Key Munitions Subsystems
Certain missile subsystems are more attractive for investors as there are more discriminators and bottlenecks in those areas. Companies lower down the value chain often have characteristics that also make them attractive private equity targets. First, they tend to be smaller and less exposed to headline risk associated with one major program but often may find themselves sole-source suppliers for critical components. Second, for firms with LP concerns about direct investment into munitions, they may still be able to capture opportunities in this market by becoming producers with multi-use components and raw materials.
We provide a breakdown of the major subsystems of a munition below. While there are opportunities in all major subsystems, we believe seekers and guidance systems are the most supply-constrained components, creating a bottleneck for expanded production. Each of the subsystems below has complex supply chains spanning Tier 2, 3, and 4 suppliers, representing potential opportunities for investors seeking to capture the tailwinds of increased munitions production.
- Seeker: This is a system composed of one or multiple sensors that detect and track a target. The two most common seeker types are radar (RF) and infrared (IR). Seekers are generally the most complex missile component and are rapidly evolving to enable the military to engage “stealthy” adversary targets.
- Guidance, Navigation, and Control (GNC): This system processes incoming data from the seeker and datalinks and guides the missile to the target. It also helps the missile determine its own location.
- Propulsion: Generally, an SRM, this subsystem produces thrust for a missile to reach its target. Advances in adversary capabilities necessitating a greater range and mass are driving increased emphasis on SRMs. Manufacturers have also cited SRMs as a critical bottleneck for munitions production.
- Airframe: This encapsulates the actual body of the munition and the control surfaces used to physically maneuver the missile. Advances in hypersonic and low-observable missiles are pushing the envelope of munitions airframes.
- Payload: The payload is typically a warhead that ensures that a missile can deliver its intended effect when it reaches its target. Different targets—from aircraft, ships, to ground vehicles—typically require different warheads.
- Power and electrical systems: These systems provide power to all the other subsystems in a missile. As munitions become more complex, particularly seeker and guidance systems that require higher power, this subsystem is increasing in importance.
Attractive Companies in the Supply Chain
Within the munitions supply chain, there are a multitude of companies with technological or competitive discriminators. Capstone is highlighting three examples across the supply base:
- For a Tier 1 supplier, Ursa Major Technologies Inc. is a privately held company that services the SRM market, having partnered with the US Navy on SRMs for the Navy’s Standard Missile family, particularly the Mk 104 SRM. Aside from receiving government support as an alternative SRM supplier, the company has also been associated with a new rocket technology called Highly Loaded Grain, which may be a major enabler of longer-range missiles that maintain the existing size and form factor of current missiles. While classification sensitivities obscure the exact programs that use this technology, Ursa Major is well-positioned to bring it to next-gen long-range munitions, which will likely be a major priority for the DOD.
- EaglePicher Technologies LLC is a Tier 2 supplier that is positioned to benefit from increased spending in munitions. The company is currently producing the majority of the DOD’s thermal batteries used in munitions, exposing it to major growing programs, including PAC-3, THAAD, AIM-120 AMRAAM, and Tomahawk. A two- or three-times growth of the munitions market will directly impact the company’s end market; it is also positioned as a key merchant supplier to next-generation munitions, such as hypersonic weapons and low-cost munitions.
- With sensors representing a difficult-to-replicate subsystem with many specialty providers, Pacific Radomes Inc. is a supplier positioned to benefit from increased investment in munitions supply chains. Radomes have many technical discriminators and are essential to all radar-guided munitions, which comprise most air-to-air munitions.
What’s Next
Capstone believes that munitions spending will grow under the Trump administration and beyond. National security voices on both sides of the aisle are highlighting the national security pitfalls of a significant gap in key munitions as the US seeks to deter conflict with near-peer adversaries like China. Capstone expects Prime Contractors for critical munitions, such as PAC-3, THAAD, SM-3, SM-6, and AIM-120 AMRAAM, to announce major increases in production quantities over the next few months. These contractors will be scrambling to shore up sources of key components to meet their new production commitments. The state of the munitions industrial base is poised to benefit, and new suppliers coming to market over the next decade will likely find eager customers among supply-constrained Primes.
Read more from Capstone’s National Security team:
Takeaways from Oslo: Energy, Infrastructure, and Europe’s Next Defense Investment Wave
Regulatory Changes to Foster US Drone Supply Chains
Why Targeted Military Strikes on Iran Are Likely
