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If you've heard of Anduril Industries, the private military contractor founded by Oculus inventor Palmer Luckey, you probably recognize it as one of America's leading manufacturers of artificial intelligence-powered military drones. Roadrunner counter-UAS drones for aerial defense, Barracuda autonomous attack drones, Fury Collaborative Combat Aircraft -- these are the air force products that have helped make Anduril famous, and won it a multi-billion-dollar private market valuation.
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Anduril announced the U.S. Navy has awarded it a $2.9 billion contract to build components for America's fleet of Virginia-class nuclear attack submarines. To support this effort, Anduril further stated that it will invest $3.7 billion to build a new 2 million-square-foot shipyard at Sparrows Point, outside Baltimore.
This "Arsenal 2" project will make Anduril a key supplier to the two incumbent prime contractors for the Virginia-class boats, Huntington Ingalls (NYSE: HII) and General Dynamics (NYSE: GD). If they're not careful, though, the contract to build submarine parts could transform Anduril into a powerful rival for Navy shipbuilding contracts.
I don't expect this to happen immediately -- or for Anduril to actually replace Huntington Ingalls and General Dynamics. HII has been building submarines for the Navy for decades and has a military shipbuilding history that stretches even further back. General Dynamics calls itself the world's "first and finest submarine builder."
It would take a lot of effort for Anduril to upset those apple carts.
That said, if Anduril can shoehorn itself into the submarine parts supply chain, it can make itself an indispensable part of America's military-industrial complex -- and benefit monetarily from each submarine contract HII or GD win. Anduril can then turn around and use this money to develop its own independent shipbuilding business -- especially once it has a big shipyard at Sparrows Point to build with.
Sparrows Point is described as specifically focused on building parts for Huntington Ingalls' and General Dynamics' nuclear fast attack boats (for now). But Anduril is already building a tidy franchise of its own in the submarine sphere -- building autonomous submarines.
Technically described as autonomous undersea vehicles, or AUVs, Anduril is developing:
Dive-LD, a 19-foot, long-range Autonomous Undersea Vehicle (AUV) with a 10-day endurance, that may have "a wide range of defense and commercial mission sets."
Dive-XL, an even bigger, even longer-range (2,000 miles) AUV that Anduril says it can build "at a fraction of the cost of AUVs in its class." (Anduril's already begun work on this one as part of the Australian Navy's "Ghost Shark" project.)
Copperhead, a high-speed AUV being developed for "time-sensitive maritime missions."
And Seabed Sentry, not so much a submarine vehicle as a stationary observer, which can be linked to build an "autonomous undersea surveillance network."
Focusing just on the lead product of this effort, in 2024, Anduril won an $18.6 million Navy contract to begin manufacturing Dive-LD robotic submarines at its 150,000 square foot production facility in Rhode Island. The goal there is to build 200 underwater drones annually.
So imagine how much more work Anduril could get done once it has a 2 million-square-foot shipyard to work with.
Admittedly, building up Arsenal-2 will take time. Anduril doesn't expect operations to begin at Sparrows Point before 2030.
Also true, Anduril isn't the only up-and-coming military shipbuilder looking to challenge the incumbents. In recent years, we've seen everyone from Austal to Bollinger to Fincantieri to Hanwha to Vigor make inroads on U.S. Navy contracts. Specifically in AUVs, Anduril will also face competition from rising star Saronic.
But Anduril already boasts a private market valuation of $61 billion, second only in size to General Dynamics and well ahead of HII. With contracts in hand, Anduril is already America's second most valuable military shipbuilder. One day soon, it could be the nation's most important military shipbuilder as well.
With that prospect in mind, it may finally be time for Anduril to plan for an IPO.
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$2.9 Billion Contract in Hand, Anduril May Already Be America's Second-Biggest Navy Warship Builder was originally published by The Motley Fool
