As AI continues to evolve, its impact on industries like defense and security is becoming increasingly significant. Traditional defense technologies are being augmented by AI-driven systems that offer enhanced capabilities in areas such as threat detection, autonomous systems, and strategic decision-making. Let’s dive into it.

Snapshot of AI in national security

The swift evolution of AI and its integration into national security strategies are transforming military capabilities and strategic planning. The US government is actively working to exploit AI for defense and intelligence, recognizing its potential to significantly improve military effectiveness. Today, the AI market in defense and security is worth $10.1 billion and is expected to reach $39.1 billion by 2033 (CAGR of 14.5%).

Historically, technological revolutions in defense have reshaped military systems and operations. For example, the transition from the positional warfare of the First World War to the mobile, mechanized warfare of the Second World War marked a significant change. Similarly, the advent of nuclear weapons gave rise to new doctrines and strategies. The current AI revolution shares parallels with these past military-technical revolutions, but differs in its rapid pace and the important role of the private sector in driving innovation.

The dual nature of AI - applicable in both commercial and military contexts - presents unique challenges and opportunities. Much AI innovation is occurring in the private sector, which has led to a shift in the way governments approach AI development and deployment. This requires new partnerships and policies to ensure that AI is developed and used responsibly across all sectors. The US government is adapting its strategies to collaborate with the private sector and foster an environment conducive to the development of safe, secure and trustworthy AI. This collaboration is essential to harness the potential of AI while addressing concerns about its misuse.

Key areas

  • Cybersecurity - AI can detect and respond to attacks much faster than traditional methods, making it essential for protecting sensitive data and infrastructure. The AI cybersecurity market is expected to reach USD 120.8 billion by 2032, growing at a rate of 20.8% annually. This growth shows how important AI has become in staying ahead of new cyber threats and ensuring national security.

  • Intelligence gathering - In intelligence gathering and analysis, AI is improving surveillance and monitoring, making data collection and analysis more efficient. AI-powered systems now hold over 24.8% of the market share in 2023, reflecting its growing importance in national security. Advanced AI and machine learning models are used to predict potential threats and analyze large amounts of data to spot patterns. These tools help intelligence agencies make faster, more informed decisions, boosting national security efforts.

  • Autonomous systems - These can reduce the risk to human soldiers while improving the accuracy and effectiveness of military missions. However, their use raises ethical concerns about accountability and control in warfare. Despite these challenges, AI’s ability to operate independently in complex situations offers major advantages for the military, driving the growth of this sector.

  • Defense strategies - AI systems provide real-time information, allowing for quick assessments and better mission outcomes. These technologies are also used to create realistic combat simulations, which help soldiers train for a variety of scenarios. With AI's support, military forces can prepare more effectively for different situations, leading to stronger strategies and improved defense capabilities.

AI applications shaping national security 

AI applications are significantly shaping national security across multiple domains, enhancing capabilities and transforming traditional approaches to defense and intelligence. 

Cybersecurity and threat detection 

AI is now a vital tool in cybersecurity and threat detection, helping to identify and stop cyber threats more effectively. Advanced algorithms can analyze large amounts of data to detect risks with better accuracy and speed than traditional methods. AI-powered systems, like Koat, help find vulnerabilities and potential threats, enabling proactive responses. Machine learning algorithms also identify unusual patterns that may signal a cyber-attack, allowing for timely intervention. The AI in cybersecurity market is expected to grow to USD 120.8 billion by 2032, with an annual growth rate of 20.8%.

Autonomous systems and robotics 

Autonomous systems and robotics are becoming increasingly important in defense, with AI being integrated into various capabilities. AI-driven systems are improving border control and monitoring, making them more efficient and secure. Autonomous weapons systems are also being developed, which could change the nature of warfare and raise ethical concerns. These systems have the potential to reduce the risk to human soldiers while improving the accuracy and effectiveness of military missions.

Data analysis for intelligence 

Data analysis for intelligence is being revolutionized by AI, which enhances the gathering and analysis of information. Tools like SpyderAI automate the collection, processing, and analysis of data from sources such as social media, news articles, and dark web forums. AI algorithms can monitor, filter, and interpret real-time data, providing immediate intelligence updates. For example, the CIA uses an AI-driven large language model in their OSIRIS platform to analyze large amounts of publicly and commercially available information, helping to track and understand geopolitical developments in real-time.

Predictive analytics for strategic defense 

Predictive analytics for strategic defense is transforming military strategy and planning. For example, during recent hurricane planning, the 3rd Division Sustainment Brigade used open-source AI to track hurricanes and plan convoy support, showcasing AI's practical application in military operations. Predictive analytics helps speed up the OODA loop (observe, orient, decide, act), enabling military leaders to anticipate enemy moves and take preemptive actions that disrupt adversaries' decision-making. AI improves visibility, automates processes, and enhances management efficiency, allowing for better anticipation of enemy strategies. The future of predictive logistics aims to create highly responsive networks that can adjust to changing conditions in real-time, rerouting supplies and repositioning personnel as needed.

The global AI arms race

United States

The U.S. leads in AI innovation. The Biden administration had issued a national security memorandum to harness AI for advancing U.S. national security, aiming to maintain the country's advantage, especially over China. The memo calls for:

  • Implementing steps to ensure U.S. leadership in safe, secure, and trustworthy AI development.
  • Harnessing AI technologies for national security missions.
  • Advancing international consensus and governance around AI.

China

China has been less transparent about its AI military spending. However, analysts estimate that China's investment in military AI technologies has surpassed $5 billion annually by 2025. China's approach to AI development, blending civilian and military resources, has led to rapid advancements in areas like facial recognition and drone swarm technology.

Smaller nations are also leveraging AI to enhance their military capabilities. Israel, for example, has invested heavily in AI for its Iron Dome defense system, improving its interception rate to 97% by 2025. Meanwhile, North Korea has reportedly developed AI-powered cyber weapons capable of adapting to defensive measures in real-time, posing new challenges to global cybersecurity.

The private sector's role in this arms race is substantial. In 2025, it's estimated that 60% of AI technologies used in U.S. military applications are developed by private companies. This has led to a surge in defense contracts for AI firms, with the market for military AI expected to reach $20 billion globally by 2026.

The global AI arms race

Regulatory and ethical considerations - Regulatory and ethical considerations are becoming increasingly important as AI technologies advance faster than existing regulations can keep up. This creates a need for updated policies to address new threats. Ethical concerns are also growing, particularly around the use of autonomous weapons systems and AI-driven decision-making in military operations. As a result, there is a rising demand for AI security ethicists and machine learning defense specialists to tackle these complex ethical challenges.

Geopolitical risks - Geopolitical risks are rising as AI becomes a key strategic asset in global competition. Countries like China are working to become global leaders in AI by 2030, which is fueling tensions between nations. The race for AI dominance is leading to new international challenges, including potential sanctions and protectionist policies. Control over global semiconductor supply chains is becoming increasingly important in the AI arms race. Additionally, there is a risk that AI technologies could be used to develop weapons of mass destruction, carry out offensive cyber operations, or support human rights violations such as mass surveillance.

Public perception and trust - Public perception and trust are key concerns when it comes to using AI in national security. People worry about privacy and the potential misuse of personal data. There's also growing awareness that AI could be used to manipulate or deceive the public, which could damage trust in institutions. Additionally, as AI is integrated into critical infrastructure and the built environment, new risks of failure and vulnerabilities to attack could arise, further impacting public confidence.

The bottom line 

We believe AI is rapidly reshaping national security, driving advancements in cybersecurity, intelligence, and defense strategies. However, these innovations also introduce new challenges, from regulatory shifts and ethical considerations to heightened geopolitical tensions. As AI evolves, it creates compelling opportunities for investors in the defense and technology sectors, but navigating this landscape requires a proactive approach to risk management and strategic oversight.