The AI transformation in the defense sector is just beginning after the US-Iran conflict

Market movements in the defense sector following recent geopolitical conflicts can create the impression that stock prices have already priced in these developments. Setting aside the US-Iran war perspective, the long-term narrative of AI integration in modern warfare is far from over.

As early as April 2017, the US Department of Defense launched Project Maven (official full name: Algorithmic Warfare Cross-Functional Team), the first dedicated military AI project, marking a significant effort to deeply embed AI into combat systems. Today, Maven Smart Systems has been procured by NATO for coalition operations.

Which companies are the main drivers of modern defense intelligence?

Currently, $Palantir (PLTR.US)$ is one of the primary participants in the Maven project. Other participants include companies in the satellite remote sensing sector such as $Maxar Technologies Inc (MAXR.CA)$ , and players in the intelligence field like $Leidos (LDOS.US)$ 。

Meanwhile, the AI transformation of defense companies not only requires software firms such as Palantir to provide operational support software systems but also leads to a surge in demand for hardware, including sensors, navigation systems, and electronic control systems. $L3Harris Technologies (LHX.US)$ 、 $TransDigm (TDG.US)$ 、 $RTX Corp (RTX.US)$ is a major player in this field. Other relevant information is as follows:

On the other hand, traditional military departments that need to implement defense AI capabilities must be integrated. The Department of Defense (DoD) connects traditional defense units through the JADC2 initiative (Joint All-Domain Command and Control).

Based on divisions such as the Space Force, Navy, Army, and Air Force, the product lines of various companies are as follows:

What defense equipment was used in the US-Iran conflict?

The US Central Command recently announced on social media the defensive equipment used in military operations against Iran.

The relevant equipment includes:

1. $RTX Corp (RTX.US)$ Tomahawk missiles. This missile was first used during the Gulf War in 1991 and is characterized by slower speed but high precision, with modular sensor replacement capabilities.

The Tomahawk missile launch platform is the Arleigh Burke-class destroyer. $Huntington Ingalls Industries (HII.US)$and$General Dynamics (GD.US)$ General Dynamics jointly constructed the Arleigh Burke-class destroyers. However, $Huntington Ingalls Industries (HII.US)$ its main business lies in the aircraft carrier construction operations of its subsidiary, Newport News Shipbuilding. Both stocks have seen significant gains in recent years.

The primary land-based missile launch platform is the HIMARS rocket artillery system, with the main contractor being $Lockheed Martin (LMT.US)$ 。

In the drone sector, the Lucas drone was deployed for the first time in actual combat, with a unit price of $35,000, offering a cost advantage compared to missiles. The company that produces it, SpektreWorks, is currently not publicly listed.

The main fighter jets include the F-15, F-16, F-22, and F-35 series, with the prime contractor being $Lockheed Martin (LMT.US)$ 。

The B-2 bomber: produced by $Northrop Grumman (NOC.US)$。

7. The bunker buster, used to attack the Revolutionary Guard headquarters. Its main contractor is $Boeing (BA.US)$ Company, while the launch platform is the B2 bomber.

8. In order to protect US facilities in the Middle East, troops deployed the THAAD system. $Lockheed Martin (LMT.US)$ is the main contractor, $RTX Corp (RTX.US)$ provided the radar technology.

Defense sector companies' P/E ratios (excluding Palantir) do not show signs of overvaluation as a whole. For example, $Northrop Grumman (NOC.US)$TTM P/E ratio is 25 times, and General Dynamics is approximately 23 times. With the AI transformation of modern military forces, there is room for further valuation increase in the defense sector.

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