JPMorgan put $5 billion into defense startups, and one, Castelion, is challenging Lockheed's missile

JPMorgan, the biggest U.S. bank, has put $5 billion of its own equity into defense and manufacturing startups in the first year of its security and resiliency initiative, half its ten-year goal, and co-president Doug Petno says the bank may go past it. ¹ The initiative also financed and facilitated $230 billion in transactions; the equity is the part that touches other people's prices. ¹

One stake, picked by Todd Combs, the former Berkshire Hathaway·+0.08% — Berkshire Hathaway, up 0.08 percent as of its last quote portfolio manager who now leads the bank's startup-investing group, is CastelionPVT~$1B — Castelion, private, latest valuation ~$1B, a missile maker founded in late 2022 by former SpaceX▲+1.73% — SpaceX, up 1.73 percent today engineers. ¹ In September the Army named Castelion one of five firms prototyping the fourth increment of its Precision Strike Missile (PrSM) program↗, alongside Lockheed Martin·−0.83% — Lockheed Martin, down 0.83 percent as of its last quote, which builds the missile in service today. ²³

The bank's equity is buying factory capacity

Hadrian, the other disclosed holding, builds automated factories for aerospace and defense parts, and one California line runs ten robots for every employee. ¹ Castelion raised a $1 billion round in August that JPMorgan helped lead↗. ⁴ The round valued it at $13 billion. ⁴ The Navy has since moved Blackbeard, its low-cost hypersonic missile, from prototypes into a production order worth up to $200 million↗. ⁵

What the equity buys is factory capacity, the link that decides this competition. Blackbeard was, in the company's words, "engineered from inception for industrial-rate output, commercial unit cost," and cheap volume production is what makes a startup a credible bidder against an established prime contractor. ⁵ That is an equity bet, and a departure for a bank that spun off its private-equity arm more than a decade ago. ¹

Lockheed's franchise is opening from both ends

Lockheed's baseline keeps compounding: a $1.2 billion production award in September and a stated plan to quadruple PrSM output. ⁶ A March order worth about $539 million never appeared in the Pentagon's daily contract summaries, because it sat inside an existing multi-year contract with Lockheed. ⁷ Stocks ran down after the missile's first combat use, against Iran, this year. ³

At the same time, the Army has opened the franchise to competition from both ends. Five firms won prototype agreements for PrSM Increment 4, a missile fired from HIMARS truck-mounted rocket launchers at moving ships and relocatable land targets at 1,000 kilometers or more: Lockheed Martin; RTX·−0.50% — RTX, down 0.50 percent as of its last quote, Raytheon's parent and another prime contractor; AndurilPVT$123.86B — Anduril, private, latest valuation $123.86B, the defense-tech company; Castelion; and Mach IndustriesPVT~$570M — Mach Industries, private, latest valuation ~$570M. ² A competitive fly-off and down-select follow in fiscal 2027. ²

The Army asks who else can build the missile in service

And on October 14 the Army asked who else could build the missile in service today; the notice says the service holds technical data down to the line-replaceable units↗, and no second producer has been chosen. ³ Anduril, meanwhile, is running a share sale for current and former employees that would value it at about $90 billion↗, a private mark beside the public market values of the established missile makers. ⁸ Orders that once arrived without a contest now have named rivals.

The number to watch is the incumbents' premium

For JPMorgan▼−1.73% — JPMorgan, down 1.73 percent today the equity is a rounding error against a $4 trillion balance sheet. ⁹ Jamie Dimon, the bank's chief executive, who created the initiative, names the binding constraint himself: "A lot of those vendors need help, and often it's not capital," he says, pointing to trained workers and permitting. ¹⁹

The capital arrived this year; the people and the permits have not. Whoever staffs and certifies those robot lines is doing the work that should earn the return. ¹

The bank is on both sides of the program

Two things to watch: the fiscal 2027 fly-off, and the bank's dual position. Its bankers map distribution lines for submarines, missiles and aircraft to find suppliers short of capital or capacity, and the bank separately says it stays in regular contact with the Defense and Commerce Departments. ¹ Its equity book holds at least one bidder in the same program, and most of its stakes are undisclosed; the overlap is documented, and none of the sources alleges favoritism. ¹

The incumbency premium at Lockheed Martin and RTX is the number still priced for the old world. ¹⁰¹¹