The Future of Defense: Software, AI and the Shift from Firepower to Intelligence

The Future of Defense: Why the Next Generation of Warfare Is Built on Data, Not Just Hardware

Warfare is undergoing a fundamental transformation—one not defined by the size of an army or the firepower of a fleet, but by the speed of decision-making, the clarity of information, and the power of intelligent systems.

For investors, this evolution in defense strategy demands a parallel evolution in how capital is allocated. The traditional model of defense investing—focused on platforms that carry missiles and ammunition—still matters. However, the edge is increasingly being carved out by technology-first companies that build the software and analytics defining how modern militaries operate.

This is the foundation of our thesis behind the Defense UCITS ETF (DFNS): if you're looking to invest in defense, you should be investing in the future of defense.

Defense is Becoming a Software-Defined Domain

In a recent podcast, Palantir co-founder Joe Lonsdale described how data has become the central nervous system of modern conflict. From integrating satellite feeds to analyzing troop movements or cyber threats, defense operations are now won or lost based on how quickly and accurately a military can turn data into action.

Companies like Palantir, DFNS’s largest holding, are building the backbone for this new defense paradigm. Their platforms are deployed to provide real-time situational awareness, integrating thousands of data streams to guide battlefield decisions with speed and precision. These capabilities have already played a decisive role in real-world conflicts, including counterterrorism efforts and logistical operations in Ukraine.

In short, the future of warfare is not about firepower alone. It’s about decision dominance.

Autonomy, AI, and the New Military Toolkit

The rise of autonomous drones, unmanned naval vessels, and robotic systems is changing how wars are fought and won. But autonomy requires coordination, and coordination requires software. These systems don’t operate in isolation; they rely on secure, low-latency data networks and advanced AI to interpret their surroundings, avoid threats, and complete complex missions.

At the center of this are platforms that fuse sensor data, drone intelligence, and battlefield logistics into a single, dynamic operational picture. In today’s asymmetric warfare environments, from urban counterinsurgency to contested maritime zones, this synthesis of manned and unmanned capability gives militaries the agility to adapt in real time.

Moreover, artificial intelligence is now a force multiplier. It enhances decision-making, forecasts enemy behavior, and optimizes resource allocation. Importantly, AI in defense is not about replacing humans. It’s about augmenting them. "Human-in-the-loop" systems, which blend human judgment with machine precision, are central to this transformation.

Geopolitics and the Democratization of Power

These innovations are not happening in a vacuum. Global competition, particularly among the U.S., China, and Russia, is increasingly centered around AI and cyber capabilities, not just conventional military strength. At the same time, non-state actors and smaller nations are leveraging affordable technologies like commercial drones or digital surveillance tools to project power in unexpected ways. Technology is, in effect, democratizing warfare, giving asymmetric players a foothold in conflicts where they once didn’t stand a chance.

This geopolitical shift is creating demand for interoperable, secure, and rapidly deployable defense systems. Certain contractors closely with NATO and allied governments to ensure that data from different systems and nations can be shared and acted on seamlessly, a capability that becomes critical during joint operations and crisis response.

Rethinking Defense Procurement: Speed as a Strategic Advantage

Modern threats evolve faster than traditional procurement cycles can adapt. One of Lonsdale’s core critiques was that too many defense programs are bogged down in bureaucracy, taking years to move from idea to implementation.

By contrast, technology-forward firms often follow commercial software development models: rapid prototyping, iterative deployment, and direct feedback from users in the field. Palantir’s work on Project Maven and its $800M U.S. Army contract exemplifies this, delivering usable AI systems on an accelerated timeline.

In short, the winners in future defense markets will likely be those that combine technological agility with mission relevance.

Ethics, Accountability, and the Path Forward

Advanced defense technologies also raise valid ethical questions, particularly around surveillance, AI targeting, and automation. Companies in this space must grapple with the dual responsibility of enabling national security while upholding democratic values.

A pillar of $DFNS constituents are incorporated safeguards like audit trails, transparent data usage policies, and human-in-the-loop frameworks to help ensure accountability. These debates are ongoing and necessary, but they shouldn’t overshadow the fundamental shift taking place: precision and intelligence can reduce harm when applied responsibly.

Conclusion: Investing in the Future of Defense

The story of defense is no longer just about weapons systems. It’s about how information is gathered, shared, and acted upon. It’s about whether a military can adapt faster than its adversaries and maintain control in increasingly complex, contested domains.

The DFNS UCITS ETF is constructed with this future in mind. With exposure to companies building analytics, AI platforms, and autonomous systems that are redefining military capability, it provides a lens into the evolving nature of global security, one where software and data are as strategic as ships and satellites.

This shift isn’t speculative. It’s already happening. For those seeking to invest in defense, understanding this transformation is not optional. It’s essential.