The Next Arms Race Is Here – And AI Is at the Center of It

If you thought ChatGPT was the biggest artificial intelligence (AI) development in 2023…

Think again.

The AI chatbot quickly gained popularity for its ability to handle a wide range of applications, from answering complex questions to preparing legal documents.

But just as ChatGPT started grabbing headlines, a far more important AI development went unnoticed.

On February 13, an emerging technologies unit of the Department of Defense announced that an AI software successfully flew an F-16 fighter jet for 17 hours across 12 separate flights.

That goes to show that AI is way more than enhanced internet searches.

But as Inside Wall Street editor Nomi Prins put it at her urgent briefing last week, The AI Ultimatum, the explosion of AI caught the U.S. government off-guard. Countries around the world are now racing to secure an advantage by incorporating AI into their militaries… ushering in a new arms race.

That’s why defense applications are AI’s next frontier. And it’s one that could lead to a spending spree in a bid for national security.

AI’s Next Frontier

If you’re a regular reader, you already know the race is on for AI supremacy. Corporations across a variety of industries are investing in AI research to stay ahead.

Here’s more on that from Nomi, from the August 28 edition of Inside Wall Street:

Goldman Sachs sees investment in AI growing 25% per year over the next two years.

The insiders – venture capitalists, billionaires, major corporations – they’re all piling in now. Like Microsoft, which poured $10 billion into OpenAI, the parent company of the ChatGPT program.

Or AI data architecture company Databricks, which raised $1.3 billion from major investors like BlackRock and Fidelity at a $38 billion valuation.

Tesla is also making a $1 billion bet that AI can help the company develop a fully autonomous vehicle.

But the stakes are much higher and more widespread than just a few corporate behemoths duking it out.

AI is sparking a new arms race among the world’s superpowers.

In 2022 alone, the U.S. government spent $3 billion on AI research. And while that may sound like a lot, the U.S. is already at risk of falling behind.

Analysts concede that China is likely spending a similar amount on upgrading its military… a figure that’s probably much higher given the lack of information coming from Chinese authorities…

But China is also taking the lead elsewhere when it comes to AI.

China employs more AI scientists than any other country, and they’re churning out more AI-related research than any other country in the world.

China also publishes double the amount of AI research papers compared to the U.S.

Among the top 10 companies producing AI research, Chinese companies occupy four of the top 10 spots.

It’s no wonder that China’s stated goal is to become the world’s AI innovation center by the end of this decade.

And that’s because China sees AI as an advantage to offset conventional U.S. military might.

The emerging battle for AI supremacy is setting up a fight among the world’s superpowers… and Nomi believes it will create a boom in defense spending.

Defense Spending Ready to Jump

The U.S. defense budget is set to top $826 billion this year… the highest it’s ever been.

But there are signs that defense spending could swell even further. Despite this year’s record budget, U.S. military spending is running near historic lows relative to the size of the economy.

And in the last great arms race, during the Cold War, the U.S. spent $13 trillion on defense to maintain its military advantage.

This time around, competition with China could pressure the U.S. to ramp up spending, especially on AI-driven programs.

In fact, for the coming fiscal year, the Pentagon released its largest-ever innovation and modernization budget… clocking in at $145 billion.

That’s the portion of the budget that contains funding for AI projects.

Another report projects that military spending on AI-related programs will grow by 33% every year for the next five years globally.

That means AI’s impact on the military is set to expand, whether that’s for autonomous vehicles, processing data and images, or assisting with battlefield decisions.

Aerospace and defense companies that are quick to incorporate AI into their products stand to be big beneficiaries of the next arms race. 

But Nomi has uncovered what could be an even bigger profit opportunity as AI takes off.

At her urgent briefing last week, The AI Ultimatum, she shared details on her favorite AI company today. It’s trading for only $0.26. And a major announcement could send this tiny AI company soaring at any point… Click here to watch Nomi’s briefing and learn more about this tiny company.

Regards,

Clint Brewer
Analyst, Inside Wall Street with Nomi Prins