The direction of travel in aerospace and defense technology is unambiguous: investment is shifting from large, expensive legacy platforms toward systems that are smaller, cheaper, faster to produce and rapidly adaptable to changing conditions. GlobalData has identified four areas where this shift is most consequential for investors – and where the returns, and the risks, are greatest.
Artificial intelligence: the risks aren’t what you think
A widespread misconception about AI’s role in A&D is that its primary value lies in fully autonomous weapons deployed on the battlefield. Such applications exist, but they are neither as prevalent nor as commercially significant as more prosaic use cases: decision support, command and control optimization, intelligence and surveillance processing, and logistics management. These are the domains where AI is generating measurable value today, and where the investment case is most defensible.
The scale of institutional commitment is not in doubt. The Pentagon’s 2026 defense budget includes $13.4bn allocated to AI and autonomous systems development – a figure that reflects genuine strategic conviction rather than speculative experimentation. Yet investors would be unwise to treat this as a blanket endorsement of all AI in defense. The ethical and regulatory environment governing its use is still being written, and the risks of capital deployed without reference to that environment are real.
The point was illustrated vividly in March 2026. The US Department of Defense classified AI developer Anthropic as a supply chain risk after the firm’s CEO, Dario Amodei, declined to permit the military to use its systems for mass surveillance of American citizens or to power fully autonomous weapons without human oversight over targeting and firing decisions. The episode attracted relatively little financial coverage, but its implications were significant: it demonstrated that the line between commercially viable AI and politically contentious AI in defense is not fixed – and that investors caught on the wrong side of that line face meaningful headline and regulatory risk.
Cybersecurity: the quantum threat is already here
If AI is reshaping the possibilities of warfare, it is also rewriting the terms of the cyber threat landscape. Cyberattacks on defense departments and critical national infrastructure are increasing in frequency and sophistication, and AI is accelerating the offensive capabilities of hostile actors in ways that make legacy defenses progressively inadequate. Biometric security, once considered a robust barrier, faces the prospect of being bypassed by future AI-enabled techniques. The message for investors is direct: outdated infrastructure will be exposed, and the necessary upgrades represent a substantial and largely non-discretionary spending commitment.
AI-driven detection and response capabilities are emerging as the primary countermeasure, able to identify and respond to threats at a speed and scale that human-operated systems cannot match. AI is also transforming the training of cybersecurity personnel, enabling more realistic simulation of sophisticated attack scenarios.
The more consequential long-term threat, however, may already be in motion. Hostile actors are harvesting encrypted data today with the intention of decrypting it once quantum computing reaches maturity – a strategy sometimes called “harvest now, decrypt later.” Near-term commercial returns from quantum cybersecurity are limited, but the picture could look substantially different by the 2030s, as quantum computing combines with AI to deliver vastly greater computational power and control in complex military command, control, communications, computers, intelligence, surveillance and reconnaissance (C4ISR) systems. NATO and its allies are already responding, developing quantum-resistant encryption algorithms in anticipation of the transition.
Hypersonic weapons: speed isn’t everything
The concept of hypersonic flight dates to the 1930s, but its implications for modern warfare – and for investors – remain imperfectly understood. Hypersonic missiles travel at speeds exceeding Mach 5, fly at lower altitudes than conventional ballistic missiles and follow trajectories that make them substantially harder to detect with conventional radar. They can also carry nuclear warheads, a capability that adds a dimension of strategic instability well beyond their kinetic effect. China, Russia and the US have all been developing and testing hypersonic technologies, and the competitive dynamic has heightened concerns about the ability of existing defense systems to intercept them.
Russia has deployed hypersonic missiles against Ukrainian targets, with mixed results. There is genuine dispute about whether the missiles actually reached the Mach 5 threshold required for classification as hypersonic, let alone the top speed of Mach 10 claimed by Russia. The technology continues to advance, but launch failures remain frequent and the gap between developmental promise and operational reliability is considerable.
For investors, this suggests caution about offensive systems. The near-term investment case is more compelling in counter-hypersonic capabilities and the broader missile defense ecosystem. The UK’s 2023 Hypersonic Missile Research Briefing detailed collaborative development of hypersonic and counter-hypersonic technologies under AUKUS – the trilateral security pact between Australia, the UK and the US – a programme that Western nations have explicitly stated will not involve nuclear payloads. Investment will continue to improve capabilities, but stability, accuracy and the persistent challenge of launch failures are risks that must be priced in.
The space economy: where civil and military meet
The commercial space industry has undergone a structural transformation over the past decade, and the momentum shows no sign of slowing. A 90% reduction in launch costs, combined with a sustained influx of private capital, has created an ecosystem of commercially viable ventures that would have seemed improbable a generation ago. GlobalData projects the space economy will be worth between $760bn and $1tn by 2030.
The investment thesis is particularly compelling because of the dual-use nature of many space assets. Satellites, Earth observation platforms and data analytics capabilities serve commercial clients – in agriculture, insurance, emissions monitoring and financial modeling – while simultaneously providing capabilities of direct strategic value to defense establishments. It is an unusually elegant alignment of civil and military interests.
The US has historically dominated the space industry, but that dominance is being contested. Europe is pursuing greater launch independence, driven partly by concerns about relying on infrastructure located in French Guiana, France’s overseas territory in South America. Spaceports are in development across the continent, with SaxaVord in Shetland claiming it will account for 75% of Europe’s total vertical launch capacity. Scotland has also emerged as a hub for the manufacture of smallsats and reusable rockets, alongside a growing ecosystem of companies that analyze satellite data and translate it into commercial intelligence.
Discover further insights
To learn more, download The future of aerospace & defense: insights for investors & M&A dealmakers, published in association with Sterling Technology – the provider of premium virtual data room solutions for secure sharing of content and collaboration for the investment banking, private equity, corporate development, capital markets and legal communities engaged in aerospace & defense M&A dealmaking and capital raising.
