Drones, AI, space: where to invest amid defence tech boom
Global defense spending has increased rapidly since 2020, with an annual growth rate of 4.2 percent. This surge is four times faster than pre-pandemic levels, according to the Stockholm International Peace Research Institute. By 2030, defense spending is projected to reach $3.4 trillion due to escalating geopolitical tensions and competition among nations. The world's rearming trend is indicative of growing concerns about security and military capabilities. It highlights the need for strategic planning and international cooperation to maintain peace and stability.
The world is rearming at a dizzying pace. Global defence spending has surged at an annual rate of 4.2 per cent since 2020 – that’s four times faster than pre-pandemic levels, according to the Stockholm International Peace Research Institute. By 2030, that figure is expected to hit $3.4tr, reflecting rising geopolitical tensions and the race for tech superiority.
UK's Commitment to Defence Technology
In the UK, last week’s Spring Statement made it clear that defence technology has become central to the country’s economic and industrial strategy. Chancellor Rachel Reeves pledged an extra £2.2bn funding in the sector, with 10 per cent of the defence equipment budget earmarked for new technologies including AI, drones, and space-based capabilities. Prime Minister Keir Starmer also committed to raising defence spending to 2.5 per cent of GDP by 2027 – the biggest increase since the Cold War – signaling the UK’s intent on leading the global defence tech race.
Opportunities for Investors
For investors, this rapid transformation presents significant opportunities.
The Future of Combat
Drones and artificial intelligence are rapidly reshaping the battlefield. From autonomous surveillance systems, to AI-driven cyber security, the UK is positioning itself as a pacesetter in generation military technology. The government’s new £400m defence innovation fund aims to fuel these efforts, ensuring that cutting-edge technology moves swiftly from lab to front line.
“With 10 per cent of the MoD’s budget allocated to novel technologies like drones and AI, we’ll see faster to go market times and stronger sovereign capabilities”, said Tanya Suarez, head of the Janus accelerator.
Although the government’s defence spending strategy includes attracting smaller startups in emerging technologies, some experts argue that investors should focus on more established defence firms. Changes to the ministry of defence’s (MoD) procurement system should enable more smaller firms to compete for government contracts in the future, according to Jason Hollands of wealth manager Evelyn Partners.
Ben Kumar, head of equity strategy at Seven Investment Management, suggests that investors should focus on firms like Babcock International and QinetiQ, both of which have seen major wins and stand to benefit from increased defence spending.
Investing in Space Tech
Space is becoming a crucial military theatre, and so space tech is set to attract significant attention from investors. With satellites providing vital intelligence, navigation and communications, sovereign space capabilities have become a priority for defence planners.
The UK’s pivot towards a space-based defence system could drive opportunities in firms like BAE systems, QinetiQ, and Cohort. Meanwhile, a wave of smaller, cutting-edge firms could become acquisition targets for larger players.
UK Defence Tech Stocks to Watch
QinetiQ: QinetiQ is one of the UK’s most advanced defence tech firms, specializing in robotics, surveillance, and electronic warfare. The company has recently shown strong revenue growth, making it a potential beneficiary of the government’s defence push.
Babcock International: Babcock International is a major defence contractor specializing in naval engineering and submarine maintenance. Despite concerns that the sector-wide rally could slow down, Babcock’s shares remain attractively valued.
Cohort: Cohort is a smaller, yet highly specialized defence tech firm which focuses on electronic warfare, communications, and cyber security. Its long-term revenue potential makes it an interesting prospect for investors.
Beyond QinetiQ, Babcock, and Cohort, other defence tech stocks investors should consider include missile system provider Chemring Group, aerospace firm Melrose Industries, and military jet engine maker Rolls Royce Holdings.
Investor Takeaway
The UK’s renewed focus on defence tech has placed these firms at the forefront of the country’s modern industrial strategy. As European defence budgets continue to rise, these stocks offer a compelling mix of growth potential and government-backed stability – making them key considerations for investors looking to capitalize on the defence tech boom.