- Geopolitical Strategist
Norway, Intermediary
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Artificial intelligence is the topic du jour across economies and markets worldwide. And for good reason — this accelerating technology is likely to produce head-spinning shifts in:
- Labor productivity
- Wages and prices
- Industry structures
- Education
- Research and development
- Global job destruction and creation
But this isn’t the whole story. From my perspective, the most consequential aspect of the AI revolution comes down to the cold, hard reality of national security. Military planners and policymakers have likened the disruptive potential of AI to the advent of nuclear weapons 80 years ago, a comparison that begs the question: Can governments and militaries around the world peacefully navigate a “Promethean struggle” for control of this quickly evolving technology?
With the stakes so high, and the broad geopolitical environment so unstable, investors may benefit from better understanding the national security aspect of AI and its potential investment ramifications across public and private markets.
Outlining the national security stakes
Governments the world over are aware of the transformative power of AI and many are keen to “win” the proverbial arms race in this area. For example, this summer, US President Donald Trump announced an AI Action Plan, featuring more than 90 policy recommendations to bolster the US geostrategic position in this rapidly emerging technology. And Chinese President Xi Jinping has repeatedly touted the Chinese Communist Party’s directive to establish Beijing’s global leadership in AI by 2030.
The national security challenges related to AI range across multiple dimensions. A few of the most salient include:
- Combat and other military uses: AI capabilities in weapons systems (manned and autonomous), targeting, intelligence gathering, and others threaten military norms
- Enhancing state power: The use of AI in governance — for both authoritarian and democratic systems — could intensify ideological competition and threaten personal freedoms
- Bioethics: The use of AI to potentially revolutionize genomics, for example, in genetic engineering, selection, and modification creates both the potential for profound medical advances and devastating new bioweapons
- Catastrophic risks: The rapid integration of AI across previously separate domains such as biotech, cybersecurity, nuclear and other weapons systems, financial and banking systems, and others increases the probability of cascading, interlocking, and unprecedented systemic risks
The world’s two largest economies, the US and China, are arguably at the heart of these developments. This may call to mind the Cold War between the US and Russia in the second half of the twentieth century. However, unlike during the Cold War, when Washington and Moscow worked together to limit the spread and risks of nuclear weapons, today, the scope for AI cooperation between the US and China remains dangerously low.
The economic incentives for “winning AI” also suggest more conflict and less US-China cooperation on AI norms, uses, standards, and potential safeguards — particularly as both sides leverage their considerable global economic leverage for geostrategic advantage.
The investment implications
Given the enormity of the stakes, we should expect these national security drivers to play an outsized role in determining investment winners and losers across a rapidly shifting AI landscape.
I think there are several investment implications that should be a bigger part of today’s market narrative surrounding AI:
- New wars, new warfare with AI: This accelerating AI race is happening at the tail end of a very long geopolitical cycle of relative stability that’s collapsing amid widening military conflict globally. At last count, we had more than 60 conflicts around the world — double the number just five years ago and the highest since the end of World War II. This includes significant wars in Ukraine and the Middle East, both of which have been demonstrative “laboratories” for military and other national security uses of AI.
- Policymakers are prioritizing AI: Because there are so many global conflicts today, policymakers are focusing more on national security. Practically, this means defense and other national security matters are getting the highest policy priorities, and there is no higher priority than “winning” AI.
- Steering into strategies promoting AI: In this context, countries will likely prioritize strategies to promote wider and faster adoption of AI, beginning with military and intelligence operations. The Pentagon and CIA have, for years, been early adopters of AI across weapons systems and targeting, intelligence gathering, cyber offense and defense strategies, as well as logistics and more. China and Russia, too, have been leaders in these national security areas. We should expect all of this to accelerate in the coming years.
- A possible boon for the private sector: Wider and faster adoption of these capabilities across the private sector and broader economy will be another important policy priority, given the potential economic benefits of AI. I also expect lighter government regulation of AI, as the national security incentives to move quickly will likely outweigh other concerns. Moreover, the current Trump administration is clearly touting the importance of the private sector, which is arguably the “crown jewel” of AI innovation in the US and globally.
- More competition, more energy: Because of the high-stakes nature of the national security landscape as it relates to AI, coupled with the stress of great-power competition, I expect increasing competition for the many and varied inputs required to advance AI. Examples of these inputs include specialized and advanced semiconductors and the critical components necessary for their production, cloud computing clusters, supercomputers, and high-quality data sources. As competition and demand for these hardware and software components rise, so too will demand for energy sources to power this coming revolution.
As investors digest the implications of AI as a critical component of national security in countries worldwide and consider how they might apply their learnings to their portfolios, I’d like to highlight a few considerations. Current and future tariffs and restrictions, both in exports and investments in these strategic sectors, are likely to produce even more geopolitical friction. This would only bolster the case for national security AI investment — notably in defense applications where AI is showing particular promise, such as:
- Autonomous systems
- Advanced radar systems
- Missile defense
- Space-based capabilities
- Cybersecurity
Predictably, some of the most advanced uses of AI are happening at breakneck speed in Silicon Valley across several leading private defense innovation firms. So, the venture capital investment opportunities here are likely to accelerate into the foreseeable future.
Why investors should care about AI and national security
To be sure, many questions remain about the future direction of AI, the policy response, and the contours of a conflicted geopolitical environment in such flux. We are, after all, living through a period where we should be positioning our portfolios for a wider set of potential outcomes and doing more scenario planning. A key takeaway from all this is that in the current and future geopolitical and investment landscape, national security is likely to trump economic efficiency. This is a departure from the mindset we’ve seen in recent memory.
Given the high stakes and the long-term nature of this competition, I believe the national security drivers will be a dominant factor in determining future investment winners and losers. Geopolitical and policy disruptions produce ongoing differentiation opportunities for actively managed strategies, including long-short approaches across equity and fixed income markets, and thematic investment opportunities abound.
The bottom line is: It’s hard to overstate the disruptive power of AI on the future investment landscape, especially when it comes to national security-related industries and applications — something markets have yet to account for.
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