Andreessen Horowitz (a16z) is aggressively investing in defense technology, aerospace, and industrial manufacturing through its "American Dynamism" practice, even as the broader venture capital landscape grows cautious about software investments. The firm recently led a $175 million Series B funding round for Saronic, an autonomous surface vessel maker, signaling a strategic pivot toward what major investors now call "HALO" companies, short for Heavy Assets, Low Obsolescence .

Why Are VCs Abandoning Software for Industrial Tech?

The shift reflects a fundamental change in how venture capitalists assess risk in an AI-driven market. Private credit firms like KKR, Blackstone, Bain Capital, and Brookfield Asset Management are increasingly favoring industrial and asset-heavy sectors over traditional software companies . The reason is straightforward: physical infrastructure and industrial assets face lower exposure to technological disruption compared to software businesses, which can be upended overnight by artificial intelligence breakthroughs.

Dan Pietrzak, a partner in private credit at KKR, emphasized the importance of selectivity when evaluating artificial intelligence's impact on businesses. "In many cases, it's almost like surgery to rip these systems out," he explained, underscoring why some businesses are more resilient than others to the ripple effects of AI . This reality has made industrial and defense-focused companies increasingly attractive to sophisticated investors.

What Infrastructure Opportunities Are Emerging?

The pivot toward HALO companies isn't just defensive; it's also driven by genuine growth opportunities. James Cunningham, a partner in Infrastructure at KKR, noted that these assets "aren't just convenient assets; they are mission critical" . Two specific areas are creating significant market tailwinds:

• Power Generation and Distribution: As hyperscalers invest heavily in data centers and AI infrastructure, demand for reliable power infrastructure is surging, creating opportunities for companies focused on energy production and grid management.
• Digital Connectivity: The expansion of data centers and AI computing requires robust connectivity infrastructure, from fiber optic networks to wireless systems that support hyperscale operations.
• Data Center Infrastructure: AI is creating what Cunningham called a "powerful new tailwind" for data center operators and the physical infrastructure that supports them, as companies race to build out computing capacity.

The scale of this opportunity is staggering. Hyperscalers are expected to spend roughly $500 billion in 2026 alone on infrastructure and computing capacity . This massive capital deployment is creating a multi-year runway for companies that provide the physical assets, power, and connectivity these operations require.

How Are Major Investors Positioning Themselves in Industrial Tech?

Several major firms have already raised substantial capital to capitalize on this trend. Blue Owl Capital closed its digital infrastructure fund III with $7 billion, focusing specifically on data centers and digital infrastructure, and is expected to launch a fourth fund in 2026 . Meanwhile, a16z's American Dynamism practice is actively deploying capital across defense technology, aerospace, and industrial manufacturing sectors.

The a16z investment in Saronic exemplifies this strategy. Autonomous surface vessels represent a convergence of defense technology, industrial innovation, and AI-driven automation, making them precisely the type of company that fits the firm's thesis about long-term value creation in complex, mission-critical sectors.

"AI will be disruptive, but figuring out how companies can use that for their portfolios and to drive long-term value is an important piece to the puzzle," said Alisa Amarosa Wood, a partner in private equity at KKR.

Alisa Amarosa Wood, Partner, Private Equity at KKR

What Does This Mean for the Broader Investment Landscape?

The shift toward industrial and defense-focused investments reflects a maturation in how venture capitalists think about artificial intelligence's impact on different sectors. Rather than betting on software companies that might be disrupted by AI, sophisticated investors are increasingly backing the physical infrastructure, defense systems, and industrial automation that will power the AI economy for decades to come.

KKR's investment team concluded that "today's uncertainty is creating opportunities across many asset classes, including private markets," and that success requires staying "focused on fundamentals" rather than reacting to short-term noise . For a16z and other forward-thinking investors, that means doubling down on sectors where artificial intelligence enhances value rather than threatens it, and where the underlying assets have durable, long-term demand.