IPO Candidate Anduril Industries Makes Military Drones -- and Shoots Them Down, Too

Privately held Anduril Industries was named after the Sword of Kings in J.R.R. Tolkien's Lord of the Rings trilogy. Established for the purpose of building fantastical, artificial intelligence-powered weapons for the U.S. military, it has at least a couple of things in common with another defense contractor with a name borrowed from Tolkien: Palantir.

The biggest difference between the two companies: Palantir is publicly traded, and Anduril isn't -- so you can't yet invest in Anduril.

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However, Anduril has made no secret of its intention to conduct an initial public offering (IPO) sometime soon. For that reason, over the past few weeks, I've been conducting a moderately deep dive into Anduril -- who founded it, what it does, and when it might go public.

Anduril in 2024

Last month, for example, I surveyed every major Pentagon contract Anduril entered into in 2024, and came away with the distinct impression: Anduril is primarily a drone company.

It may not be the world's biggest manufacturer of military drones. But the seven big contracts Anduril won last year are worth about $400 million in future revenue -- nearly as much as all the revenue it collected in 2023. But do you know what might make even more money for Anduril than building drones?

Shooting them down.

Image source: Getty Images.

Anduril in 2025, and beyond

The Pentagon prefers to call drones either "unmanned aerial vehicles" (UAVs) or "unmanned aerial systems" (UASs). Similarly, when describing systems designed to counter threats from hostile drones -- to detect, track, and destroy them -- the military generally calls such systems C-UAVs or C-UASs.

The public got its latest hint of how big a business counter-unmanned aerial vehicles systems might be for Anduril earlier this month when the Pentagon's daily digest of contract awards highlighted a $642.2 million contract granted to the company.

Under this contract, Anduril will "deliver, install, and sustain Installation-Counter small Unmanned Aircraft Systems" at fixed locations (specifically, Marine Corps bases). In Pentagon-speak, the program will be known by the acronym "I-CsUAS".

A 2022 article published on the official website of the U.S. Marine Corps noted that I-CsUAS will involve the construction of long-range sentry towers equipped with radar, optical sensors, and passive radio frequency detection capability, and utilizing Anduril's "Lattice" artificial intelligence (AI) software to identify, categorize, track, and destroy incoming UAV threats.

DefenseScoop.com reported that, in total, Anduril defeated nine other companies to win the I-CsUAS contract. Among those rivals was Israel's Rafael Advanced Defense Systems, maker of the Israeli Iron Dome missile defense system.

Anduril's bid was probably helped by the fact that, in addition to being a U.S. company, it (like Rafael) was able to offer the Marines an existing, combat-proven system that "can deliver real capability ... today" because it's already "been in service for many years ... with multiple services at multiple locations around the world" -- including U.S. Special Operations Command.

Now, Anduril just needs to execute on its contract. InsideDefense.com reported last year that initial operational capability for I-CsUAS might arrive during the government's fiscal 2025 third quarter (which ends Sept. 30). Last week, CBS News 60 Minutes quoted NORAD commander Gen. Gregory Guillot discussing plans to install drone defense systems similar to I-CsUAS "inside of a year." That could still happen, but Anduril itself did not state a date for first installation or initial operational capability in its announcement. Given that the contract was only just awarded, a 2026 timeline seems more likely.

When ever it starts, the Pentagon's contract announcement noted that Anduril will be working on this project through March 2035.

Should you buy an Anduril IPO?

This is an important detail for investors to keep in mind. On the one hand, $642.2 million is a lot of money -- more than all the revenue Anduril collected in 2023 across its entire business, and awarded here in just one single contract. However, this contract will stretch over 10 years, meaning its value per year is closer to $64 million.

That's still a lot of money for this company, about 14% of 2023 revenue, and about 6.4% of the $1 billion revenue that Anduril founder Palmer Luckey previously said the company probably did in 2024. Put another way, winning this single contract will add 6.4% to the company's growth rate in 2025 and beyond. Moreover, should Anduril's systems perform well, that would likely lead to it landing more and bigger contracts -- perhaps many more and much bigger.

Consider that, at last report, the U.S. Marine Corps had a total of 21 operational military bases in the U.S. and abroad that might need drone protection. The entire U.S. military, however, has closer to 750 military bases scattered around the globe.

In that context, I'd suspect there's a lot of room for this I-CsUAS contract to grow in future years, and with it, the entire company. That's why I can hardly wait to see Anduril IPO.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.