Global military expenditure, which hit US$2.4 trillion in 2023, is expected to surge some 40 per cent to $US3.4 trillion by the turn of the decade on the back of rising geopolitical tensions, accelerating deglobalisation and the increasing integration of next-generation technology into defence.
As nations rethink traditional military strategies, a growing share of global defence budgets is being directed toward artificial intelligence (AI), robotics, cybersecurity, and advanced software solutions.
Speaking on a webinar this week, Global X director of research Tejas Dessai highlighted the US government’s record US$916 billion defence expenditure in 2023, alongside a near doubling of AI-related contracts in the defence sector between 2022 and 2024.
Moreover, he revealed, global spending on AI military solutions is projected to grow at an 11 per cent CAGR, reaching US$22.6 billion by 2032, positioning the sector as a major beneficiary of rising militarisation.
“For the past couple of decades, defence has broadly been immune to technological disruption,” Dessai explained, while today budgets largely reflect a shift towards digitisation.
“A lot of the innovation that we’ve seen emerge has happened over the past couple of years only, and that is really giving these companies [tech firms] an accelerated growth curve”.
AI-enabled systems, particularly in the drone market, are at the forefront of this transformation, with the industry anticipated to reach US$33 billion by 2030.
For example, AeroVironment, one of the largest pureplay drone vendors, reported US$717 million in revenue in FY24 – up 33 per cent from the year prior.
This, Dessai said, suggests that the defence technology sector, as part of the broader industrials, defence, and aerospace industries, is in a strong position for rapid growth.
“I think we’ve gotten some very strong evidence in terms of the conflicts that we saw in Ukraine, the conflicts recently in the Middle East, where drone technology can play a very powerful role.
“You have these major militarised nations really balancing the dynamic when it comes to the use of this frontier innovative technology in deterring threats as well. And we think that that will significantly drive spending on areas like drones as well as autonomy on the battlefield,” he explained.
Beyond AI, the US defence budget for cyber activities increased by 15 per cent from fiscal year 2023 to 2025, with Dessai highlighting cybersecurity as a critical theme in the evolving global defence landscape.
“Given the importance of cyber security solutions, as well as a breadth of cyber security offerings to really secure that cyber stack, we’re starting to see a much better growth profile, as well as more attractive valuations from that cohort as well,” he said.
However, while defence budgets are shifting toward AI, cybersecurity, and automation, spending on software remains a small portion of overall military expenditures.
“Software today forms a very small percentage of global defense allocation,”Dessai said. “When you look at, for example, the United States – an example of what other countries are doing around the world – we spend almost US$900 billion on defence every single year, but we end up spending less than US$10 billion on software applications every single year.”
Pointing to a “range of policy discussions”, as well as a range of initiatives designed to accelerate the use of software within the defence apparatus, Dessai concluded that software too presents an “exciting opportunity”.
