Portugal’s technology companies should prepare now for Europe’s defence investment cycle

Europe is preparing for a different scale of defence investment

Defence has moved rapidly towards the centre of European industrial and innovation policy. The most visible indication is the European Commission’s proposal for the next Multiannual Financial Framework, covering the period from 2028 to 2034. The proposed EU budget totals almost €2 trillion and substantially increases resources dedicated to security and strategic autonomy. Within it, €131 billion would be allocated to defence, security and space through the European Competitiveness Fund. This would represent a fivefold increase in EU-level funding compared with the current programming period.

Europe is attempting to strengthen its own technological and industrial capacity in defence. That creates a corresponding question for European companies: which technologies, capabilities and suppliers will form part of the industrial base that emerges from this investment cycle?

Defence is an opportunity for enabling technologies

Defence should not be interpreted exclusively as an opportunity for established manufacturers of military platforms, weapons or equipment. Modern defence systems rely on a much broader technological base. Aircraft, unmanned systems, naval platforms, communications networks and command-and-control systems depend on materials science, software, cybersecurity, artificial intelligence, sensors, electronics, telecommunications and advanced manufacturing.

The European Defence Agency’s (EDA) technology structure itself reflects this breadth, with dedicated areas covering materials and structures, communication systems, cyber technologies, simulation, sensors, aerial systems and other enabling capabilities.

For companies currently outside the defence sector, the strategic question now should be: “Could our existing technology solve a relevant defence problem?”

In many cases, the transition does not require abandoning existing civilian markets or developing an entirely new technology. It requires identifying a credible defence application and understanding what additional adaptation, testing, certification or integration is needed.

• Advanced materials are a clear example: the EDA identifies lightweight structures, high-performance and high-temperature materials, protection systems, advanced coatings, composites, smart textiles and additive manufacturing among the technologies relevant to future defence platforms. A material originally developed for mobility, energy or industrial applications may therefore have potential in UAV structures, aerospace components, naval systems, propulsion or protection. For Portuguese companies developing composites, coatings, ceramics, specialised alloys or advanced manufacturing processes, defence and aerospace should increasingly be considered as potential additional markets.
• The same applies to digital technologies and cybersecurity: Defence systems are increasingly connected, software-defined and dependent on the secure collection, transmission and processing of information. European cyber-defence priorities already include threat detection, incident response, cryptography, secure software engineering, cloud technologies, military communications protection and cyber situational awareness. Companies working in artificial intelligence, telecommunications, edge computing, data analytics, cloud architectures, secure software, digital twins, simulation or autonomous systems may therefore possess technologies with direct defence relevance.

Again, the starting technology may already exist. What changes are the requirements around it: higher levels of cybersecurity, resilience, interoperability, sovereignty and the ability to operate in hostile or degraded environments.

STEP can become a bridge towards the European Defence Fund

This European shift coincides with an important change in Portugal. Following the reprogramming approved at the end of 2025, Portugal 2030 can provide financial support to projects in the defence sector. These investments are expected to be supported mainly through the mainland regional programmes and may be complemented through COMPETE 2030, including under STEP.

This matters because one of the main barriers facing companies entering defence is the gap between possessing a promising technology and possessing one that a defence industrial partner can actually integrate.

A company may need to redesign a product, demonstrate interoperability, improve cybersecurity, test it under demanding environmental conditions, scale its manufacturing process or validate the technology alongside a defence stakeholder.

National funding can help finance this transition

Its strategic value, however, can extend beyond the national project itself. The European Defence Fund is fundamentally collaborative, supporting cooperation between companies and research organisations from across Europe. Entering competitive EDF consortia generally requires established technological capabilities, clear industrial roles and relationships between organisations that understand what each partner can contribute.

A Portuguese STEP project can therefore be used to build those positions in advance:

• For a materials company, this may mean validating a novel material under aerospace or defence conditions while developing a relationship with a system integrator.
• For a cybersecurity company, it may mean adapting a civilian solution to military security requirements and validating it with an industrial or institutional user.
• For a digital company, it may mean demonstrating an AI, communications or data-processing solution within a realistic defence use case.

The pathway can therefore be understood as a progression: existing civilian or dual-use technology → national defence R&D and validation → defence references and industrial partnerships → European collaborative R&D → integration into European defence value chains.

The objective should be to use the national STEP call to create the technological maturity, credibility and partnerships required for the next step.

2026 and 2027 as positioning years

The proposed 2028-2034 European budget still needs to pass through the EU legislative and budgetary process, so its final architecture and amounts may evolve. What is already clear is the scale of the political and financial shift: the Commission has proposed a fivefold increase in EU-level funding for defence, security and space and a tenfold increase for military mobility.

For Portuguese technology companies, waiting until 2028 to react would be a mistake.

By then, many of the technologies, partnerships and industrial positions competing for future European funding may already be established.

Companies working with advanced materials should identify credible applications in aerospace, unmanned systems, protection, propulsion and other demanding environments.

Digital and cybersecurity companies should assess where capabilities in AI, communications, edge computing, simulation, data processing and cyber resilience could respond to defence needs.

In each case, the objective is similar: identify the application, understand the technological gap, find the right industrial partners and use the available funding to close that gap.

Europe’s next defence investment cycle formally starts with the next EU budget. For companies that want a meaningful position within it, it starts now.