The U.K. and Germany are emerging as key hubs for a new wave of AI defense startups, as Europe scrambles to rearm amid rising geopolitical tensions. 

Private funding for defense startups across the region has ramped up in recent years, with investors looking to tap into increasing government military budgets, driven by the ongoing Russia-Ukraine war and pressure from the Trump administration.

But it’s ecosystems in the U.K. and Germany that are seeing the most activity. The majority of the biggest rounds across the sector have been for startups based in those two countries, with both emerging as key launchpads into new markets and battlefield training.

David Ordonez, senior associate at NATO Innovation Fund, told CNBC that this was “thanks to the scientific expertise of their talent base, national commitments to treat this sector as an economic engine for growth and a manufacturing base that enables the rapid scaling of breakthrough innovation.”

Venture capital for European defense startups has spiked as members of the NATO military alliance have agreed to increase security spending to 5% of gross domestic product, and defense departments in London and Berlin have increasingly signaled a willingness to adopt new technology built by younger players in the market.

Investors, buoyed by the promise of commercial deals, have funneled a record $4.3 billion into the sector since the start of 2022, according to Dealroom — nearly four times the funds deployed in the previous four years.

Germany’s AI drone makers Helsing and Quantum Systems hit valuations of 12 and 3 billion euros this year, respectively, after rounds worth hundreds of millions of euros. In the U.K., manufacturing platform PhysicsX, which works with defense companies, raised $155 million this year, and missile interception startup Cambridge Aerospace reportedly picked up a $100 million round in August.

The U.K. government’s Strategic Defence Review in June proposed boosting spending on novel tech and streamlining procurement processes, as well as unveiling a £5 billion tech investment package.

“We see a system increasingly open to non-traditional primes, supported by wider investment in skills and technology,” Karl Brew, head of defense at Portuguese-U.K. drone startup Tekever, told CNBC. 

Tekever, which became a unicorn this year, announced a major contract to supply uncrewed aerial systems to the Royal Air Force in May. Helsing has several contracts with the U.K. government, and U.S.-based Anduril signed a £30 million contract for its attack drones in March.

Germany announced its defense spending would rise to upwards of 100 billion euros — a record figure since the German reunification — from 2026, and also changed procurement processes to make it easier for startups to participate.

While most European governments have ramped up defense spending, Germany stands out as having “visible pathways from prototype to major procurement [for startups] that many other European markets still do not provide,” Meghan Welch, managing director at financial advisory firm BGL, told CNBC. 

Helsing and attack drone startup Stark are both in line to win a contract for kamikaze drones, the Financial Times reported in October. Helsing and Stark declined to comment to CNBC about this.

It ended up being a “hawkish cut,” as expected. Still, investors managed to find a few gifts tucked between the lumps of coal.

Even though the U.S. Federal Reserve lowered interest rates by a quarter percentage point on Wednesday stateside, two regional bank presidents — Jeffrey Schmid of Kansas City and Austan Goolsbee of Chicago — wanted rates to stand pat.

Their caution was echoed in the Fed’s “dot plot” of rate projection, which showed officials penciling in just one cut in 2026 and another for 2027.

Even the Fed’s rate statement was repurposed from the December 2024 meeting, which ushered in a nine-month period without cuts until September this year.

Why, then, did U.S. markets rise after the meeting?

The biggest surprise was the Fed’s announcement that it would begin purchasing $40 billion in Treasury bills, starting Friday. That move increases the money supply in the economy. In other words, it’s a stealthy way to ease conditions, which helps support financial markets.

Next, Chair Jerome Powell dismissed speculation about future hikes.

“I don’t think that a rate hike … is anybody’s base case at this point,” Powell said. “I’m not hearing that.”

Fed officials also see the U.S economy as remaining resilient. Collectively, they increased their forecast for economic expansion in 2026 to 2.3% from an earlier estimate of 1.8% in September.

“We have an extraordinary economy,” said Powell.

And the markets may be setting up for an extraordinary finish to the year.

“The last interest rate decision of 2025 has essentially paved the way for a Santa Claus rally to end the year, and the S&P 500 is poised to exceed the 7,000 milestone in the next few weeks,” said José Torres, senior economist at Interactive Brokers.

For investors, that would count as a very decent Christmas surprise.

— CNBC’s Jeff Cox contributed to this report.

AI defense booms in UK and Germany as new wave of billion-dollar startups emerge

Venture capital for European defense startups has spiked as members of the NATO military alliance have agreed to increase security spending to 5% of gross domestic product. Additionally, defense departments in London and Berlin have increasingly signaled a willingness to adopt new technology built by younger players in the market.

Investors, buoyed by the promise of commercial deals, have funneled a record $4.3 billion into the sector since the start of 2022, according to Dealroom — nearly four times the funds deployed in the previous four years.

— Kai Nicol-Schwarz

Big Tech is doubling down on investing billions in India, drawn by its abundance of resources for building data centers, a large talent and digital user pool, and market opportunity.

In under 24 hours, Microsoft and Amazon pledged more than $50 billion toward India’s cloud and AI infrastructure, while Intel on Monday announced plans to make chips in the country to capitalize on its growing PC demand and speedy AI adoption.

While India trails the U.S. and China in the race to develop a native AI foundational model, and lacks a large domestic AI infrastructure company, it wants to leverage its expertise in the information technology sector to create and deploy AI applications at enterprise level, also offering Big Tech companies a huge opportunity.

Having a model or computing is not enough for any enterprise to use AI effectively, and it requires companies making application layer and a large talent pool to deploy them, S. Krishnan, secretary at India’s Ministry of Electronics and Information Technology, told CNBC.

Stanford University ranks India among the top four countries along with the U.S., China and the UK in the global and national AI vibrancy ranking. GitHub, a community of developers, has ranked India at the top with the global share of 24% of all projects.

India’s opportunity lies more in “developing applications” which will be used to drive revenues for AI companies, Krishnan said.

On Tuesday, Microsoft announced $17.5 billion in investment in the country, spread over 4 years, aimed at expanding hyperscale infrastructure, embedding AI into national platforms, and advancing workforce readiness.

“This scale of capex gives Microsoft first‑mover advantage in GPU‑rich data centers while making Azure the preferred platform for India’s AI workloads, as well as deepening alignment with the government’s AI public infrastructure push,” said Tarun Pathak, research Director at Counterpoint Research. 

Amazon on Wednesday announced plans to invest over $35 billion, on top of the $40 billion it has already invested in the country.

Over the past few months, AI and tech majors such as OpenAI, Google, and Perplexity have offered their tools for free to millions in India, with Google also firming up its plans to invest $15 billion toward building data center capacity for a new AI hub in southern India.

“India combines a huge digital user base, rapidly growing cloud and AI demand, and a high-talent IT ecosystem that can build and consume AI at scale, making it more than just a market for users and instead a core engineering and deployment hub,” Pathak said.