The Leading Edge of Tech Is Underway in an Unlikely Industry

When you think artificial intelligence (AI) or its spinoffs, you usually think about Alphabet (GOOG), Amazon (AMZN), Meta (META), or Microsoft (MSFT), not the US military.

But in the age of the “networked battlefield” there’s a stunning amount of work being done by the military branches of governments.

And when you look at the massive amount of spending on militaries, a lot of that money is about secure communications and battle-hardened systems that are far more robust than many civilian solutions.

For example, of the biggest US cybersecurity companies with government contracts on the civilian side, defense contractors like Raytheon (RTX), Lockheed Martin (LMT), and Northrop Grumman (NOC) are in the top five.

Why? Because security is absolutely essential is large organizations in some of the most challenging conditions.

That’s not to say however that their solutions are the best for every situation. Keeping the Social Security system safe is different than running enterprise software for more dynamic government agencies.

And companies like AMZN and MSFT are becoming significant players in the Pentagon because they are better at balancing flexibility with security.

The US will spend $58 billion in cybersecurity spending in 2024. The US government spends $1.9 trillion a year on tech.

That’s a big market, especially for companies like AMZN and MSFT since that’s an annual number and once you have a system in place for the military, many other departments and agencies are interested.

And once you land a contract and get it up and running, no one is too keen on switching to a new system.

Most of the big tech firms are very interested in government business, as are up and comers, since there are few customers as reliable as the US government. And that steady income helps build a platform for more aggressive expansion in the private sector.

Yet even beyond the big tech firms that are already government contractors, there’s one level deeper.

And that’s the fact that the military as well as the civilian government agencies need more powerful computers to operate at the speed of government-sponsored hackers and lone wolves.

AI cybersecurity is already a top priority for the military and intelligence services, even as it transitions into the civilian economy.

And that means chipmakers like NVDA and ASML (ASML) stand to be significant indirect beneficiaries of this military demand for AI cybersecurity (and AI) as well.

The key to following the military MegaTrend is to understand the influence it has on the economy as a whole. Quite often it’s the leading edge in applying technology before it’s “let into the wild” of the broader economy.

But as in many sectors, the “pure plays” can be attractive yet they don’t always offer the kind of upside as other players.

In this case it’s the advanced chipmakers, the companies that make that chipmaking equipment, and the cloud platforms that create secure real-time environments to make it all flow.

These are the stocks that populate may select portfolios – and they’re some of the greatest long-term growth plays in the markets today…and tomorrow.