Industrial Pulse Check:

Q3 in Review:  Defense Supercycle Offers an Industrial Lifeline 

A data-backed look at tariff impacts, defense trends, and industrial leaders

Industrial markets are on a split trajectory. On one side, tariff uncertainty is stalling capital projects, suppressing manufacturing output, and slowing venture investment in civilian sectors. On the other hand, the global defense supercycle is accelerating, with NATO’s spending commitments and US modernization programs creating new supply chains for drones, submarines, and dual-use technologies. The mining and upstream sectors are also benefiting from government price floors and security priorities, which offer preferential access to critical inputs.

Tariff Headwinds: Civilian Industries Under Pressure

Uncertain tariff policies are creating broad-based headwinds for the global industry:

• US manufacturing has contracted for six consecutive months through August 2025, driven by declines in production.
• Global PMIs in the US, UK, and South Korea all remain in contraction territory.
• Venture pullback: IoT VC funding is on pace to decline 18% in 2025 after rising in 2024, according to Momenta’s analysis of PitchBook data.

Auspicious signals are already flashing, suggesting a negative impact to GDP in 2026. In cyclical industries, recessionary conditions can cause damage that may take years to overcome. These pressures are forcing civilian-focused producers into slower growth paths and increasing the need to diversify into dual-use business lines.

Published by: Bloomberg, "Industrial Pulse: June 2025, Issue 2," Evan Momios

Defense Tailwinds: Global Spending Supercycle

Defense demand is accelerating worldwide, offsetting weakness in civilian markets.

• NATO commitment: In July, members agreed to increase defense spending to 2% of GDP by 2024 and to 3% of GDP by 2035. Morningstar estimates this equates to a 6.8% annual increase in European defense budgets.
• US modernization: The Executive Order on Unleashing Drone Dominance has fueled outperformance in unmanned vehicles, space, and defense tech equities.
• Submarine fleet turnover: A $1.8 billion award to General Dynamics is accelerating the delivery of next-generation submarines, with up to 66 vessels planned by 2035.

These programs are reshaping supply chains for drones, submarines, and dual-use technologies, creating ecosystems where startups and corporates can grow.

Published by: Morningstar, "Industrial Landscape: Defense,” July 2025, Loredana Muharremi, Nicolas Owens, Andrea Burigana

Mining and Upstream: Government-Backed Stability

Mining remains a bright spot in industrial output data:

• US mining production has posted year-over-year growth for five consecutive months through August 2025.
•  Price floors for rare earths ensure demand for domestic producers, such as MP Materials, underscoring the government's priority in securing supply chains.

Mining’s resilience contrasts with declining manufacturing and transportation metrics, showing how national security priorities are redirecting industrial capital flows.

Published by: Bloomberg, "Industrial Pulse: September 2025, Issue 1," Evan Momios

LP Signals: Case Studies in Industrial Transformation

Rather than dictating our tactical direction, our Limited Partners’ recent results serve as case studies of the broader forces reshaping today’s markets:

• Advantech achieved 24% growth in Europe during H1 2025, driven by strong demand for semiconductors and momentum in the military embedded computer market. This validates Europe’s industrial resurgence as supply chains evolve, and mirrors strong growth across Momenta’s European portfolio companies.
• NS Solutions/Nippon Steel benefited from the US approval of its merger with US Steel, unlocking a $3.1 billion investment in domestic steelmaking and the potential revival of the Gary Works tin mill, evidence of consolidation and policy priorities reshaping upstream value chains.
• Rockwell plans to invest in capital expenditures through the market downturn, allocating $2 billion over 5 years on US-based equipment manufacturing, talent, and digital infrastructure. The company is investing in internal digital automation while introducing digital solutions to its customers. The five-year timeframe aligns with reacceleration in GDP growth and civilian manufacturing.
• Semtech continues to show resilience across infrastructure and IoT: Q3 FY2025 sales reached $236.8M (+10% q/q) with record data center revenue of $43M (+58%). Guidance of $266M for Q3 FY2026, plus the September launch of LoRa Gen 4 (up to 2.6 Mbps, low power, backward compatible with 450M+ devices), underscores new industrial edge use cases and durable demand across IoT, industrial, and data center markets.

Together, these developments demonstrate how leaders in our LP network are not only weathering volatility but also actively shaping the next phase of industrial growth.

Startup Implications: Where to Act Now

For startups, the signal is clear: resilience lies in aligning with government-backed growth engines.

• Defense & dual use: New markets are opening in drones, submarines, and space technology.
• Mining & materials: Startups building with domestic rare earths gain preferential access to supply chains. A recent Rockwell customer, Hancock Iron Ore, adopted AI-driven predictive maintenance using DataMosaix LLM Agents, proving that upstream industries are seeking advanced digital solutions.
• Ecosystem players, including Anduril, Hadrian, Field AI, and Gecko Robotics, are executing mega-deals that build supplier ecosystems, enabling startups to scale.

Startups that pivot toward these high-growth, government-supported use cases can capture uncorrelated growth, even as civilian markets struggle. Looking ahead, GDP growth is expected to reaccelerate by 2027; by then, those positioned today will be driving tomorrow’s Industrial Impact®.

For a deeper dive into the data and company signals behind these insights

Momenta is the leading Industrial Impact® venture capital firm, accelerating industrial innovators across energy, manufacturing, smart spaces, and the supply chain. Our team of deep industry operators has helped scale industry leaders and innovators to improve critical industries, the environment, and people's quality of life for over a decade. PitchBook named Momenta among the world's top ten digital industry venture funds for both 2023 and 2024 in its Global Manager Performance Score League Tables, one of just two European-headquartered VCs to achieve a Top 10 ranking. For more information, please visit http://www.momenta.one. 

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