Two of the largest U.S. defense technology companies, Palantir and Anduril, are in discussions with several firms to create a consortium aimed at bidding for U.S. government contracts. This initiative seeks to disrupt the long-standing dominance of the nation’s “prime contractor oligopoly.”

The consortium is expected to officially announce in January that agreements have been reached with a variety of technology groups. Companies reportedly in talks to join include Elon Musk’s SpaceX, OpenAI (creator of ChatGPT), autonomous shipbuilder Saronic, and artificial intelligence data group Scale AI, according to sources familiar with the matter who spoke to The Financial Times (FT).

“We are working together to build the next generation of defense companies,” stated one individual involved in forming the group.

This move underscores the growing ambition of technology firms to claim a larger share of the U.S. government’s $850 billion defense budget, traditionally dominated by contractors like Lockheed Martin, Raytheon, and Boeing.

The consortium will unite some of Silicon Valley’s most innovative and valuable companies, leveraging their technologies to offer the government more efficient, cutting-edge solutions for defense and weapons systems. A second source described the collaboration as a way to modernize defense capabilities through advancements in artificial intelligence, automation, and software.

Defense technology startups have attracted record funding in 2023, fueled by increased federal spending on national security, immigration, and space exploration. This trend reflects rising geopolitical tensions involving the U.S., China, and conflicts in Ukraine and the Middle East. These dynamics have bolstered government confidence in advanced AI for military applications, further enticing investors into the sector.

Palantir, founded by tech investor Peter Thiel, has seen its share price soar by 300% over the past year, giving the company a market value of $169 billion—surpassing even Lockheed Martin. Anduril, founded in 2017 with Thiel’s backing, reached a valuation of $14 billion this year. Similarly, SpaceX was valued at $350 billion in December, making it the world’s largest private startup. OpenAI has climbed to a valuation of $157 billion since its inception in 2015.

While SpaceX and Palantir have a long history of securing public contracts, newer entrants like OpenAI are adapting their policies to enter the defense sector. OpenAI recently revised its terms of service, removing restrictions on the use of its AI tools for military purposes.

U.S. defense procurement has faced criticism for being anti-competitive and favoring a few entrenched firms producing large-scale systems like tanks, ships, and aircraft. These systems often require years to design and manufacture, with high associated costs.

In contrast, Silicon Valley’s emerging defense sector emphasizes smaller, more affordable autonomous weapons systems, which proponents argue are better suited to modern warfare.

One source described the consortium as a strategic alignment of industry players to address the Department of Defense’s (DoD) technical priorities and resolve critical software capability gaps.

According to the FT, agreements among participating companies are already underway, with integration efforts to begin immediately. Recent collaborations include the integration of Palantir’s AI Platform, a cloud-based data processing tool, with Anduril’s autonomous software Lattice for national security applications.

Anduril and OpenAI have also partnered on U.S. government contracts, combining Anduril’s anti-drone defense systems with OpenAI’s advanced AI models to counter aerial threats.

“We aim to provide the U.S. Department of Defense and the intelligence community with access to the most advanced, effective, and secure AI-driven technologies available in the world,” Anduril and OpenAI said in a joint statement.

The U.S. Federal Reserve reduced interest rates by a quarter percentage point but signaled a slower pace of easing next year. This move drove the U.S. dollar to its highest level in two years and triggered a sell-off in both domestic and international stock markets.

The Federal Open Market Committee (FOMC) voted on Wednesday to lower the benchmark interest rate to 4.25–4.5%, marking the third consecutive cut. The lone dissenting vote came from Cleveland Fed President Beth Hammack, who favored maintaining the current rates.

Officials highlighted concerns about persistent inflation, projecting fewer rate cuts for 2025 than previously expected. Reflecting these worries, policymakers also raised their inflation forecasts for the coming year. Following the announcement, Fed Chair Jay Powell remarked that the current policy settings were “significantly less restrictive,” indicating the Fed’s inclination to adopt a more cautious approach to further easing.

“This decision was a ‘closer call’ than prior meetings,” Powell noted, emphasizing that inflation trends remain “sideways” while risks to the labor market are “diminishing.”

Aditya Bhave, senior U.S. economist at Bank of America, described the Fed’s message as “unabashedly hawkish.” He pointed to the shift in officials’ 2025 forecasts, which now anticipate just two quarter-point rate cuts instead of three, calling it a “wholesale shift.”

JPMorgan Chase, a key player in U.S. bond markets, noted that money markets are pricing in only a 0.31 percentage point rate cut in 2025. This outlook, significantly tighter than the bank’s earlier 0.75-point forecast, underscores the magnitude of the Fed’s policy shift.

The decision triggered a sharp sell-off on Wall Street, with the S&P 500 falling 3% and the tech-heavy Nasdaq Composite dropping 3.6%. High-profile winners of the 2024 rally were hit hard, including: Tesla, down 8.3%; Meta (Facebook’s parent company), down 3.6%; Amazon, down 4.6%.

Smaller companies, often seen as more sensitive to US economic fluctuations, also suffered. The Russell 2000 index declined 4.4%.

In Asia, stocks fell in early Thursday trading. Benchmarks in South Korea and Taiwan dropped 1.8% and 1.6%, respectively. Meanwhile, U.S. government bond prices fell, driving the yield on two-year Treasuries—sensitive to Fed policy—up by 0.11 percentage points to 4.35%.

The U.S. dollar surged 1.2% against a basket of six major currencies, reaching its strongest level since November 2022. According to Wells Fargo senior economist Mike Pugliese, the currency had already been rising on expectations of inflationary pressures following Donald Trump’s election victory last month. However, Wednesday’s Fed decision “poured more petrol on the fire.”

The South Korean won dropped to a 15-year low against the dollar, while the Japanese yen weakened 0.5%.

Amazon confirmed on Thursday that it will contribute $1 million to Donald Trump’s inauguration fund, a move mirroring similar actions by other major tech companies, including Meta, the parent company of Facebook and Instagram. Amazon also plans to broadcast Trump’s inauguration via its Prime Video service.

This announcement comes as major tech executives seek to establish ties with the incoming U.S. president, despite Trump’s longstanding criticisms of Big Tech. Trump has frequently accused technology companies of censorship and bias against conservative media.

Jeff Bezos, Amazon’s founder and CEO, is reportedly planning to meet Trump at his Mar-a-Lago resort next week, according to The Wall Street Journal, which first reported Amazon’s donation. Similarly, Google CEO Sundar Pichai and Apple CEO Tim Cook have expressed their congratulations to Trump since his election victory in November.

Trump’s relationship with Amazon has been fraught with challenges. During his first term, he accused the company of undercutting competition and criticized its tax policies. In 2018, Trump ordered a review of U.S. Postal Service package pricing, claiming the agency acted as Amazon’s “courier.”

Apple, meanwhile, faces potential risks from Trump’s proposed tariff policies, which could disrupt critical supply chains in China. However, during Trump’s first term, Cook secured exemptions for certain Apple products.

Meta’s CEO, Mark Zuckerberg, and other tech leaders have also engaged with Trump. According to The Information, Zuckerberg dined with Trump after the election. Pichai is also expected to meet Trump this week.

While Trump scrutinized Big Tech during his presidency, Amazon now faces mounting regulatory pressure under President Joe Biden. The U.S. Federal Trade Commission (FTC), led by Lina Khan, has been investigating Amazon for alleged monopoly practices, with several states filing lawsuits last year. The FTC is also examining major cloud service providers, including Amazon, over partnerships in artificial intelligence.

Despite earlier conflicts, Bezos recently praised Trump for his “tremendous grace and courage under real fire” in a post on X (formerly Twitter) following an assassination attempt. Bezos, who also owns The Washington Post, reportedly prevented the newspaper from endorsing Trump’s Democratic opponent Kamala Harris in the 2024 election.

Speculation about a tacit agreement between Bezos and Trump has surfaced, allegedly tied to Blue Origin, Bezos’s rocket company competing with Elon Musk’s SpaceX.