Impulses: The future of defense is in technology
External security is once again crucial for Europe, but the nature of defense has changed. Today, military strength is not only measured in tanks and fighter planes, but also in data, software and technological innovation.
Modern threats require modern tools, and the future of defense is being developed in technology companies as much as in shipyards and weapons factories. The changing nature of defense opens up new opportunities for investors seeking a financial stake in developments.
Innovation is a force multiplier
Europe needs to rearm: with more money and also with smarter, more innovative investments in defense. Modern warfare has developed considerably over the past decade. The war in Ukraine has shown that military success is not determined by firepower alone. Innovative thinking in defense strategies is much more important. Today, the battlefield is increasingly dominated by unmanned systems. The Ukrainian military has deployed countless drones to monitor front lines and direct artillery, as well as unmanned ground vehicles (UGVs) for dangerous frontline missions, including mine clearance and casualty evacuation.1
Unmanned systems not only offer tactical advantages, they also solve the growing shortage of military personnel.2 Unmanned tanks, ships, drones and robots are so-called force multipliers, i.e. a combination of these factors with military personnel or weapons enables greater performance than without them. In addition, they are relatively cheaper and able to augment defense capabilities without risking human lives.
New fronts: AI and cyber security
Militaries are increasingly turning to dual-use technologies - products and technologies that can serve both civilian and military purposes. NATO recognizes the critical role of commercial and dual-use technologies in sustaining military advantage. Innovations that can be applied across sectors maximize resources and minimize costs3, enabling militaries to adapt more quickly to new threats.
Artificial intelligence (AI) and cyber security are examples of commercial technologies that are also used in the military. Originally intended to optimize business processes, AI is now being used to make better decisions in military operations, detect threats faster, coordinate responses and protect troops on the ground. This change is accelerating the demand for specialized software. For example, Ukraine used new software to analyze enemy troop movements and develop military strategies based on this data.4
One of the biggest threats to nations is cyber warfare. Technologies originally developed to protect corporate data are now essential to secure military communications and infrastructure from cyber threats. Cyber attacks on power supplies and financial systems can be just as devastating as missile attacks.
Since the beginning of the Russian war against Ukraine, cyberattacks have disrupted communication systems such as the Kyiv Post and the KA-SAT satellite network and hindered access to key financial and energy services.5678
Governments around the world are investing in cybersecurity.9 This trend is mirrored in the private sector: we expect AI-driven technologies to play an even greater role in defense than the traditional defense industry in the future.
Conclusion
The defense of the 21st century will depend as much on software, sensors and systems as on soldiers and steel. For investors, the implications are clear: investing in defense today no longer means investing only in tank builders or weapons manufacturers. It also means investing in technologies that have emerged from civilian considerations. As the lines between civilian and military applications blur, investors have the opportunity to support innovations that drive both the future of the civilian economy and national security. Investors seeking financial exposure to the defense sector might consider a mutual fund or ETF that provides exposure to the sector.
1 Ukraine's military to roll out units of robotic vehicles | Reuters
2 The Soldier Shortage — It’s Time to Conscript - CEPA
4 Ukraine is using Palantir's software for 'targeting,' CEO says | Reuters
5 Russia behind cyber attack with Europe-wide impact an hour... - NCSC.GOV.UK
6 European Parliamentary Research Service (EPRS). "Russia's War on Ukraine: Timeline of Cyber-attacks.
7 Russia conducted mass cyberattack on Ukraine's state registries, deputy PM says | Reuters
8 European Parliamentary Research Service (EPRS). "Russia's War on Ukraine: Timeline of Cyber-attacks.
9 Commission to invest €1.3 billion in artificial intelligence, cybersecurity and digital skills
