Investing in Defence: It’s Not Just Bombs, Bullets and Smith & Wesson Anymore

From Bombs to Bytes: Rethinking Defence Investing

The days of defence investing simply being a case of solely backing companies that make missiles, bombs, fighter planes, and ammunition are long gone. Ukraine’s latest covert operation, ‘Spiderweb’, deep inside Russian territory is a striking example of how both covert and overt military operations now rely not only on physical hardware but also on intangible assets like software, AI, big data analytics and systems integration to enhance precision and mission success, potentially shifting the tide in conflicts.

Conflict, both micro and macro, has been a persistent feature of humanity since our earliest days of sitting around campfires (and I’m sure even before then). There may come a time when peace reigns eternal, but looking at the world today, it's clear that differences in ideology, religion, politics, or even simple geography will continue to fuel instability and drive conflict. Even in the absence of open war, the principle of “who has the bigger stick” ensures nations and private enterprises keep investing in next-generation weapons systems, digital infrastructure and defence systems more broadly.

Deterrence is the art of producing, in the mind of the enemy, the fear to attack.

Given this reality, and the sheer scale of government defence spending globally, it makes sense to explore investment opportunities in companies driving innovation in defence. In many cases, these aren't the legacy contractors, they're nimble, tech-forward firms reshaping what modern conflict looks like. As with the emergence of SpaceX, disruption often comes from outside the traditional incumbents who become comfortable and slow to innovate, and the return potential for investors can be compelling.

There are relatively few listed companies at the bleeding edge (excuse the terrible pun) of this “new defence” ecosystem, where AI, big data, and real-time decision-making are as critical as missiles and tanks. But there are some. Palantir Technologies is arguably the most visible and advanced player in this category, steadily growing its footprint in U.S. military and intelligence contracts as well as the private sector.

Yes, traditional firms like Boeing and Raytheon still have their place and they'll no doubt continue building the physical tools of warfare upon which wars are won or lost. But these firms are often encumbered by bureaucracy and legacy systems, making them slow to adapt. The attitude of ‘what worked yesterday will work tomorrow’ is pervasive and slows down progress. The precision delivery of bombs and missiles on target and on time is increasingly guided by software and that’s where companies like Palantir excel.

Palantir CEO Alex Karp has often criticised Silicon Valley’s obsession with social apps and the sectors cultural resistance to supporting the U.S. military and government more broadly. In his view, this is short-sighted. The safe, stable and enabling US economic environment that allowed these very tech firms to grow and thrive is a biproduct of the US’s global dominance which was, in part, built upon wars fought and lives lost.

Some of the brightest minds of a generation in tech, simultaneously benefit from this safe, stable environment and yet refuse to contribute to its maintenance. Make no mistake, foreign adversaries face no such ethical conflict and will continue to weaponize technology, with or without Silicon Valley’s blessing.

The Digital Battlefield in Action:

• Palantir is gaining traction within the U.S. military-industrial complex as leaders wake up to the fact that the next frontier is digital. Change in any government is slow, but it’s happening. Often the best way to begin understanding some of the potential applications of these systems is to see examples of them in action.

In Ukraine, Palantir has quietly become a digital backbone for battlefield decision-making. According to interviews and reporting from The Times and the Wall Street Journal, the Ukrainian government is using Palantir’s software to coordinate drone strikes, predict troop movements, and assess battlefield damage in near real time. By integrating satellite images, sensor data, intercepted comms, and frontline reports, Palantir's AI models help identify Russian artillery positions, calculate optimal strike windows, and even simulate enemy responses before Ukrainian commanders give the go-ahead.

The result is a battlefield where decisions that once took hours or days are now made in minutes, with higher accuracy and lower risk to human life. One Ukrainian officer reportedly said that Palantir “lets us see the war before we fight it.”

• Palantir’s role in the U.S. opioid crisis response is another powerful illustration of its non-military, yet highly strategic capabilities. Working with the U.S. Department of Health and Human Services, Palantir developed a system to track the flow of prescription opioids, identify supply chain anomalies, and spot overdose hotspots before they spiked.

By linking datasets across law enforcement, healthcare, logistics, and census regions, Palantir’s platform could flag suspicious distribution patterns, like rural pharmacies suddenly ordering 10x more painkillers, and help authorities intervene before the drugs hit the streets.

This real-time data fusion and predictive modelling enabled faster interdictions, smarter resourcing, and more coordinated public health responses across states. It’s a clear example of how defence-grade software can address complex civil crises.

• Back in Ukraine, this past week news broke of a covert operation ‘Spiderweb’ that was staggering in its reach and ability to target high value military aircraft using low-cost hardware combined with sophisticated Ai-powered software. In short, drones packed with explosives were smuggled into Russia in the roofs of wooden sheds mounted on civilian trucks. Once near their targets — four separate military airbases — the sheds opened, releasing drones that destroyed at least 40 Russian aircraft.

In this operation, drones were deployed with AI-assisted targeting, allowing for precision strikes on high-value aircraft. While not fully autonomous, the drones blended manual control with machine vision, enabling them to hit known weak points on Russian bomber aircraft.

According to open-source reports, Ukrainian teams pre-mapped structural vulnerabilities, feeding this data into onboard systems to guide final-stage maneuvers. The result? A new era of semi-autonomous drone warfare. Faster, smarter, and harder to defend against. This is the cutting edge of conflict, and its software driven.

Palantir is just one example of the opportunities in this sector, and as global conflicts persist, the integration of advanced technology into military strategy is poised to reshape 21st-century warfare, altering defence and intelligence priorities in the months and years ahead. As with any investment, there is always risk, and some of these stocks trade at high valuations (unsurprisingly, as these are typical ‘growth stocks’) because many investors are willing to pay for the future potential they see.

Wars are no longer fought solely on the physical battlefield, but increasingly in the AI driven, digital battlefield. The question for investors isn’t if this transformation is happening, it’s whether your portfolio is positioned to benefit from it.