The rise of machines and modern warfare has already been automateded
Autonomous Weapons Are Reshaping Defence Spending — and Creating a New Investment Category
Global defence spending hit $2.63 trillion in 2025, per the IISS. The U.S. Defence Department budget expanded to $1 trillion for fiscal 2026 — up 13%, per the Brennan Center for Justice — with $13.4 billion requested specifically for autonomous weapons and unmanned systems, per Rolling Stone.
The capital is funding systems already in combat.
What Is Already Deployed
Ukraine has become the live proving ground. The country produced over three million drones in 2025 across aerial, ground and maritime categories, with a target of seven million in 2026, according to the Atlantic Council. AI-enabled drones with autonomous terminal guidance — capable of locking onto targets and completing strike missions without continuous human control when data links are jammed — are already operational on both sides of the conflict, per Autonomy Global.
Ukraine tested swarm technologies in over 100 operations in 2025. Russia doubled fibre-optic FPV drone production to 50,000 per month by September, per Ukraine's Arms Monitor. The offence-defence cycle is shaping procurement across NATO.
Beyond Ukraine, semi-autonomous systems are embedded in established architectures: Israel's Iron Dome, the U.S. Aegis combat system, and precision-guided munitions across NATO all involve significant automation in detection, tracking and engagement.
The Market
The global AI-in-defence market was valued at $9.13 billion in 2025 and is projected to reach $29.48 billion by 2035, growing at 12.5% annually, per Morningstar. The autonomous military weapons market is on a parallel track — $19.82 billion in 2026, projected at $30.18 billion by 2030, per The Business Research Company. The broader UAV market is forecast to reach $209.9 billion by 2035, per Precedence Research.
Defence stocks have outperformed sharply. The SPDR S&P Aerospace and Defence ETF returned 65.3% over twelve months. European defence funds did even better — the STXX Europe Aerospace and Defence ETF gained over 95% to January 2026, driven by EU military spending increases tied to the Ukraine conflict, per U.S. News. Congress approved a U.S. defence budget of $900.6 billion for 2026, injecting capital into contractors and defence technology firms.
The Regulatory Gap
156 states supported a UN General Assembly resolution on autonomous weapons in November 2025, expressing concern about "the risk of an emerging arms race" and "lowering the threshold for escalation of conflicts." The UN Secretary-General has called for a global ban on lethal autonomous weapons and urged Member States to set regulations by 2026.
Progress has been slow. The Group of Governmental Experts under the Convention on Conventional Weapons is nearing the end of its mandate, with negotiations on a binding instrument still pending. Forty-two states have called for formal negotiations, but consensus remains elusive between powers developing the systems and those seeking to restrict them.
The Brennan Center warned in March 2026 that the Pentagon's race to adopt AI is proceeding "without oversight and safeguards" commensurate with the speed of deployment.
What Investors Should Consider
Defence automation sits at the intersection of record government spending, accelerating battlefield demand and a regulatory vacuum. The investment case is straightforward: budgets are rising, procurement cycles are accelerating, and the technology is shifting from experimental to operational.
The risks are less visible but material. Regulatory action — however slow — could restrict certain system categories. A binding instrument under the CCW would directly affect manufacturers and procurement pipelines. Public backlash against autonomous lethal systems could create reputational and ESG screening risk for companies and the funds that hold them. And the sector's returns are tightly linked to geopolitical instability — a tailwind that, by definition, carries its own risks.