One year’s worth of work done in one day…

That’s how fast the Chinese military designed the electrical layout of a new warship.

It would have taken 300 times longer for humans to do it, even with the most advanced computer tools available today.

How did China pull this off? By using a proprietary artificial intelligence (AI) designer.

It’s a quantum leap in design efficiency and precision. It paves the way for military innovations that will revolutionize modern warfare.

And it’s just one way China’s military is using AI.

China is already one of the leaders in AI-powered drones. In May, it launched the world’s first AI-powered drone carrier. This 88-meter ship is unmanned and can carry dozens of AI drones.

But while advancements like this took place, the U.S. government sat back. And now, it’s scrambling to catch up to China.

Because an AI arms race against China is not a race the U.S. wants to lose… And as I’ll show you today, that has implications for investors.

China Is Winning This AI Race

As I mentioned, China is one of the frontrunners in developing AI-powered drones.

In 2011, the Chinese government invested roughly $3.1 million in unclassified AI research at Chinese universities. It also spent about $8.5 million on machine learning.

AI spending soared to around $86 million in 2019, with machine learning expenses at roughly $55 million.

By 2021, China accounted for a majority – 70% – of the global market for unmanned aerial vehicles (UAV) equipped with AI systems.

Estimates put the Chinese government’s AI spending at $150 billion by 2025. And several Chinese companies are already developing AI-powered drones.

DJI is the biggest name, with its AI-powered drones like the Mavic 2 Pro and the Inspire 2.

Now, DJI denies working with the Chinese government. But we know nothing happens on Chinese soil that the Chinese Communist Party (CCP) isn’t aware of.

So it’s a good bet that, at the very least, DJI shares its research and development info with the CCP.

The U.S. government seems to agree.

In 2020, DJI made it on the U.S. government’s Entity List, effectively putting it under export and import restrictions.

U.S. authorities cited national security concerns, fearing the Chinese government could use the drones for surveillance on American soil.

And, as I write this, two initiatives in Congress could significantly impact the use of DJI drones.

In the Senate, a bipartisan effort is underway to prevent government agencies from operating Chinese-made drones, including those produced by DJI.

Meanwhile, a bill is making its way through the House to implement a total ban on DJI drones across the U.S.

If it passes, it will impact recreational users of DJI drones to full-blown government operations.

At writing, DJI continues to actively oppose such legislation through lobbying efforts.

But it’s just one of many Chinese companies making waves in the AI-powered drone space. There are others like EHang and Xiamen Zongshen. Xiamen Zongshen in particular is known for crafting drones with military applications.

And just last August, the CCP imposed export controls on drones and related equipment to “safeguard national security and interests.”

Why Drones?

Why is China so keen on AI-powered drones? There are a few reasons.

First, thanks to AI, these drones can operate all on their own.

Second, the drones are equipped to handle it all – from surveillance and reconnaissance to attacks.

Third, these drones don’t need a ground controller. That means they’re immune to traditional methods of disruption, such as using directed energy weapons to disrupt communications.

And they’ve already proven their efficacy in recent military conflicts across the world.

The war in Ukraine is one example.

Just last week, a Ukrainian company confirmed their drones are now autonomously striking Russian forces.

This marks the first known use of AI-powered drones, with previous UN claims of autonomous attacks in Libya in 2020 still unconfirmed.

The Saker Scout drones, as they’re called, can independently spot, identify, and hit 64 different Russian military objects, even in radio-jammed areas that block other drones.

But it’s not just about the offensive…

In March 2022, Ukrainian forces used AI-powered drones to airlift critical food and medical supplies to soldiers surrounded in Mariupol.

The drones navigated through Russian air defenses to deliver the supplies to the soldiers who were running low on food and medicine. It’s an example of militaries using AI to reduce casualties of war.

And that’s exactly why China is pouring billions into advancing AI-powered drone tech.

The U.S. Can’t Be on the Wrong Side of This Tech

We’re only in the early stages of AI-powered drone technology. And the applications are virtually endless – way beyond what we can imagine right now.

For most people, the word “drone” evokes images of flying, unmanned vehicles. But drones can also traverse land and navigate waters.

For instance, Australia, one of America’s closest allies, could soon have dozens of lethal, autonomous robots patrolling the ocean depths.

The recent “Defense Strategic Review” from the Australian government reported:

China’s military build-up now represents the largest and most ambitious endeavor by any country since the end of the Second World War.

A crisis could emerge with little or no warning, it noted.

Australia knows it can’t wait decades to prepare. The U.S. has realized this, too.

Just last month, we learned that the Pentagon intends to field a vast network of AI-powered technology, drones, and autonomous systems within the next two years.

The goal is to “counter threats from China and other adversaries.”

It’s all part of the Pentagon’s so-called “Replicator” initiative.

According to Kathleen Hicks, the deputy secretary of defense, that initiative includes plans to spend hundreds of millions of dollars to produce thousands of air-, land- and sea-based AI systems.

These are intended to be “small, smart, and cheap.”

In other words, the Pentagon wants to deploy thousands of autonomous systems, like unmanned aircraft and underwater drones, to counter China’s military buildup.

The U.S. needs to match China’s escalating military prowess… And this marks the start of an AI arms race.

This Race Is Just Getting Started

The latest Pentagon budget request included $1.8 billion for AI in 2024. And I’m certain that’s just the beginning. Consider this…

In 2021, the whole “AI in Military” market was just $6.6 billion, according to Vantage Market Research. Through 2028, Vantage expects that market to hit $12.7 billion.

But these recent developments in AI-powered systems tell me that this figure is on the low side.

Congress, too, is looking to expand AI research to make sure the U.S. remains ahead of adversaries like China.

For instance, in June, Senate Majority Leader Chuck Schumer vowed to make AI a priority.

That was on the heels of a bipartisan group of senators introducing the Global Technology Leadership Act. The goal of that act, according to Senator Todd Young (R-IN), is to:

…better synchronize our national security community to ensure America wins the technological race against the Chinese Communist Party.

In addition to a just-announced $826 billion spending spree in military defense, a trend is clearly forming. And in our experience, when the government latches onto a trend, speculating on that trend is usually a great bet.

It’s why Inside Wall Street editor Nomi Prins spends so much time on Capitol Hill – to stay ahead of Washington’s money trail. And today, that trail leads to AI.

Nomi has even identified a tiny AI company that stands to benefit – and you can buy in today for around 26 cents. To learn more, click here.


Lau Vegys
Analyst, Inside Wall Street with Nomi Prins