Disruptors: The next generation of defence is driven by technology

In today's world, military strength is not just measured in tanks and fighter jets but also in data, software and technological innovation. Modern threats require modern tools, and the future of defence is being built as much in tech companies as it is in shipyards and arm factories. The evolving nature of defence opens new possibilities for investors seeking exposure to the future of the defence sector.

Europe must rearm. Not just with more money, but with smarter, more innovative investments. Modern warfare has evolved significantly over the past decade, and the war in Ukraine has highlighted that military success is not solely determined by firepower. Instead, flexibility has become essential to national security, requiring innovative thinking in defence strategies. As the war in Ukraine has demonstrated, the battlefield today is increasingly dominated by advanced technology. Ukraine has used drones extensively to surveil frontlines and guide artillery. Moreover, Ukraine’s military is rolling out unmanned ground vehicles (UGVs) to be used in dangerous frontline missions, including mine-clearing and evacuating casualties.¹  

Beyond the tactical advantages, emerging technologies also address the growing shortage of military personnel.² Unmanned tanks, vessels, drones and robotics are not only force multipliers - they are also cheaper and able to extend defence capabilities without requiring equivalent manpower and capable of saving lives. 

Militaries are increasingly turning to dual-use technologies – products and technologies that can serve both civilian and military purposes. NATO recognises the critical role of commercial and dual-use technologies in maintaining military advantage. Innovations that can transition between sectors maximise resources and minimise costs,³ allowing militaries to adapt more quickly to emerging threats.

Artificial intelligence (AI) and cybersecurity are prime examples of commercial technologies that have transitioned into military use. Originally intended to optimise business processes, AI is now leveraged to enhance decision-making in military operations, allowing for faster threat detection and coordinated responses, safeguarding forces on the ground. This shift highlights the growing demand for specialised software from companies like Thales, Palantir and Anduril, a private company. For instance, Palantir’s software has been utilised by Ukraine to analyse enemy troop movements and devise military strategies based on this data.⁴  

Joost Olde Riekerink

Equity Research & Advisory Expert

One of the biggest threats nations face today is cyber warfare. Technologies initially designed to protect corporate data are now essential for securing military communications and infrastructure against cyber threats. Cyberattacks on power supplies and financial systems can be as devastating as missile strikes. 

Since Russia's war on Ukraine began, cyberattacks have disrupted communication systems like the Kyiv Post and the KA-SAT satellite network, and hindered access to vital services such as finance and energy.⁵

Across the world, governments are responding by investing in cyber resilience.⁶ This trend is echoed in the private sector, where France's Thales has quadrupled its cybersecurity revenues recently.⁷ We anticipate that advanced technologies will play an even bigger role in the future of defence than the traditional arms industry.

The defence of the 21st century will be as much about software, sensors and systems as about soldiers and steel. For investors, the implications are clear: Investing in defence today no longer means simply investing in tank builders or weapon manufacturers. It also means investing in technologies that originated with civilian ambitions.

As the lines between civilian and military applications continue to blur, investors have the opportunity to support innovations that drive both the future of the civilian economy and national security. Embracing this multifaceted approach will be essential in navigating the evolving landscape of modern defence. Investors seeking broad exposure to the defence sector may consider an investment fund or ETF that provides exposure to the broad sector.

¹Ukraine's military to roll out units of robotic vehicles | Reuters 

²The Soldier Shortage — It’s Time to Conscript - CEPA 

³NATO. Science & Technology Strategy: Sustaining Technological Advantage. Approved by the North Atlantic Council, 27 July 2018.  

⁴Ukraine is using Palantir's software for 'targeting,' CEO says | Reuters 

⁵Russia behind cyber attack with Europe-wide impact an hour... - NCSC.GOV.UK, Russia conducted mass cyberattack on Ukraine's state registries, deputy PM says | Reuters, European Parliamentary Research Service (EPRS). "Russia's War on Ukraine: Timeline of Cyber-attacks   

⁶Commission to invest €1.3 billion in artificial intelligence, cybersecurity and digital skills 

⁷Defence firm Thales eyes profit growth after cyber expansion | Reuters