Billions of dollars are pouring into a small group of companies that are reshaping how militaries fight, moving warfare from hardware-heavy deployments to software-driven, screen-based operations.
The UK Ministry of Defence signed a £2bn ($2.7bn), 15-year contract with the Raytheon UK-led consortium Omnia Training on July 10 to train 60,000 soldiers annually using AI. Days earlier, NATO awarded contracts for its Enhanced Air Command and Control Data Platform to US military-tech firm Anduril, Palantir, and French joint venture Athea SAS.
These deals are part of a broader shift. The Pentagon's 2014 "Third Offset Strategy" bet on AI defining the next generation of warfare. Global military spending hit $2.88 trillion in 2025, with governments accelerating AI defence procurements. The Pentagon recently signed contracts with eight leading tech companies to deploy AI across classified networks, aiming to become an "AI-first" military.
Researchers at the Stockholm International Peace Research Institute (SIPRI) mapped the AI military industry into four categories based on business models.
Defence primes: traditional arms manufacturers
These are the long-established arms makers that have supplied militaries with hardware for decades and are now layering AI onto existing systems. The largest include Lockheed Martin, RTX, Northrop Grumman, BAE Systems and General Dynamics. Their stock prices hit all-time highs after the onset of the US-Israel war on Iran.
Lockheed Martin flight-tested an AI tool for its F-35 fighter jets to help pilots identify hostile aircraft faster. L3Harris built AI into camera systems for real-time targeting and integrated platforms like Shield AI's Tracker for drone detection. Shield AI is a US defence-tech company building autonomous AI pilots for military aircraft and drones.
Neoprimes or defence startups
This newer category is software-first, selling specialised data products to the arms market, policing and border forces. Palantir is the best-known name, largely through its role in Project Maven, the Pentagon's flagship military AI programme. Maven uses AI and machine learning to sift through satellite imagery, drone videos and signals intelligence to identify and prioritise targets. It identified 1,000 targets in the first 24 hours of the US-Israel war on Iran and is also used in Ukraine.
A direct competitor is Anduril's Lattice platform, which ties its own hardware - drones, sensor towers, autonomous vehicles - into a single command network. The US Army uses it heavily.
Big tech
Companies that control roughly 67 percent of the global cloud infrastructure market - Google, Meta, Amazon Web Services - are increasingly linked to military applications. In May, the US Department of Defense announced agreements with SpaceX, OpenAI, Google, NVIDIA, Reflection, Microsoft, Oracle and AWS to use their technologies for classified networks. The deal cleared these companies for IL6 and IL7 networks, the Pentagon's most sensitive computing environments.
Foundational model providers
Firms that build the underlying AI models integrated into military tools include OpenAI, Anthropic, and Mistral AI. Chinese researchers have developed military AI models since the early 2020s, including using Meta's Llama model as the base for the People's Liberation Army tool ChatBIT, designed for intelligence gathering and decision support. The Pentagon estimates Chinese military AI spending at $1.5 to $2bn annually, comparable to US figures.
This year the Pentagon added Alibaba, Baidu, BYD, NIO, RoboSense and Unitree to its Chinese military companies list. Smaller Chinese AI firms tied to ex-Baidu, Alibaba and Tencent employees have been building targeting, surveillance and decision-making tools for the military, according to a 2021 report by the Centre for Security and Emerging Technology (CSET).
Many frontier AI labs initially opposed military use of their products. In 2024, OpenAI removed its military-use ban, and Palantir partnered with Anthropic - a relationship now facing lawsuits over how the US military used Claude.
Why this matters for government, IT and research professionals
The AI military industry is no longer a niche defence sector. It now draws in the same cloud providers, AI labs and data platforms that power civilian enterprise and government services. Professionals in IT, government procurement and research need to track how these technologies - and their ethical boundaries - are being redefined. The removal of military-use bans by major AI firms signals a permanent integration of commercial AI into warfare, with implications for regulation, contracting and scientific collaboration.
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