From Battlefield To Boardroom: How AI Is Transforming Global Defence Industry

The defence industry is experiencing significant growth. With the world becoming more unstable due to geopolitical churning, such as Russia's invasion of Ukraine, the ongoing conflict in Gaza and increasing competition between major global powers, countries are boosting their spending on defence.

Over the past five years, global military spending has risen by about 34 per cent, although exact numbers are difficult to pinpoint, reports the Financial Times (FT). The top five defence companies in the US have all secured a large number of new contracts during this time. This surge in defence spending is happening at the same time as a major shift in technology: the rise of artificial intelligence (AI).

As defence budgets grow and AI technology advances, those responsible for procurement should prioritize weapon systems that are cost-effective, easily replaceable and available in large quantities. This is creating many new opportunities for start-ups and fast-growing defence companies.

Eric Schmidt, former CEO of Google and founding partner of Innovation Endeavors, told FT he was investing in these start-ups because new capabilities were needed to stay competitive in today's rapidly changing world. Although the US and Ukrainian military differ in many ways, there are several valuable lessons to be learnt from Ukraine's conflict with Russia.

Here are three key lessons that can help guide the military, defence budget planners and procurement experts as we move forward into future.

1) First, the dictum is that 'you fight with the army you have, not the one you'd ideally want'. This means it is essential that the boost in defence spending and the replacement of weapons sent to Ukraine not only replenish US stockpiles, but also upgrade and modernize those weapons, as well as the defence industry that produces them.

While profits from costly, high-end systems and their maintenance allow major defence contractors to repurchase stock, more funds should be directed towards research and development. This means that large defence companies make money by selling expensive, advanced military systems and maintaining them, but they often use these profits to buy back their own shares. However, the statement suggests that, instead of focusing so heavily on stock buybacks, these companies should invest more in research and development to drive innovation and improve future defence capabilities.

This could eventually allow the US to add, or even replace, F-35 fighter jets and their support systems-such as mid-air refuelling planes and ground crew-with long-range autonomous drones. At the very least, the profits could be used to buy new companies, strengthening the motivation for defence start-ups that are working on creating the next generation of American weapons.

2) Another takeaway for America is that it needs technology that can still communicate well, even in tough conditions, especially in areas heavily impacted by electronic warfare.

A key lesson for the US from the conflict in Ukraine is the difficulty of working without reliable GPS, or when it is being tricked, while trying to hit enemy targets over 100 kilometres away. In these situations, regular electronic navigation systems can fail, putting missions at risk of not being finished and leaving troops exposed. The US needs weapons and systems that can work dependably even when standard tools, such GPS, do not, using such alternatives as quantum navigation and visual odometry.

• Quantum Navigation: This uses the principles of quantum physics to track position without relying on satellites, making it harder for enemies to disrupt. It uses highly sensitive quantum sensors to track movement by measuring changes in atomic states, such as acceleration and rotation. Unlike GPS, it does not rely on external signals, making it more accurate and resistant to jamming or interference, ensuring reliable navigation even in hostile environments.
• Visual Odometry: This tracks movement by using cameras to analyse the surrounding environment, similar to how humans use their eyes to figure out where they are. These technologies are not just for getting through tough environments; they also help in gaining an edge by providing better information than one's enemies during the most crucial times.

3) The last lesson is how uneven warfare can create big differences in the balance between cost and effectiveness and these gaps become even larger the longer a conflict lasts. As seen in Ukraine, it is not practical to use a $4-million Patriot missile to take down a $50,000 Shahed drone.

A well-known concern in the US is that a few Chinese DF-21 or DF-26 missiles, costing $10 to $20 million each, could destroy a US aircraft carrier with its crew of 6,000-all for less than 1% of the carrier's $13 billion value.

To address these concerns, what is needed is more affordable and abundant options that rely on flexible, interconnected software for better efficiency. However, this will need changes in how equipment is bought, moving away from focusing only on the lowest price and sticking to old methods. Instead, smarter buying strategies that consider not just the total cost-but also supply chain strength, performance and flexibility-are needed.

There are challenges that could prevent defence budgets from increasing endlessly. In the US, alarmingly, debt repayment costs exceeded annual defence spending for the first time in 2024. Additionally, rising personnel costs within the defence budget are becoming a concern, as they could limit funds for modernization and developing new weapons.

Tanks to Algorithms: AI & Innovation in US Defence

Still, it is possible that the US will keep increasing its defence budget. Senator Roger Wicker, a key member of the Senate Armed Services Committee, has suggested a plan to raise defence spending to nearly 5% of the GDP, a level not seen since the 2009 troop surges in Afghanistan and Iraq, according to FT. This would bring the US defence budget closer to reaching $1 trillion for the first time.

Most of this money would, possibly, go towards existing programmes and covering the increasing healthcare and pension costs for military personnel. However, there are signs that the US is starting to take innovation more seriously. The National Defense Authorization Act, which sets the funding for the US military, planned a fivefold increase in the Defense Innovation Unit's budget last year, raising it to nearly $1 billion. Although this is still less than half of 1 per cent of the total budget, it is a step in the right direction.

This is a positive step that is being noticed globally. In recent years, the number of NATO countries meeting or exceeding their defence spending target of 2% of GDP grew from nine in 2020 to 23 in 2024.

New international efforts are also taking shape, such as NATO's Defense Innovation Accelerator for the North Atlantic (DIANA), a programme that supports the development of such cutting-edge defence technologies as AI, quantum computing and biotech. The programme supports AI technologies across Western countries and connects innovators with military experts and funding, helping NATO countries quickly adopt advanced technologies for defence and security purposes.

What is needed is to carefully plan goals and figure out the best way to reach them, rather than relying on past methods or old weapons systems. Innovation is crucial. Simply purchasing the same weapons used in past wars just will not help. In the AI era, one must create, adjust and embrace AI-driven weapons.

(The author of this article is a Defence, Aerospace & Political Analyst based in Bengaluru. He is also Director of ADD Engineering Components, India, Pvt. Ltd, a subsidiary of ADD Engineering GmbH, Germany. You can reach him at: [email protected])