Frank Talks: The AI Defense Supercycle Has Already Begun Active uses images taken from Shutterstock
Artificial intelligence is no longer just a buzzword. That’s fueling a defense-driven spending boom that investors can’t ignore. In his latest op-ed, Frank Holmes, CEO of Global Investors of America (NASDAQ: GROW )argues that the AI-in-defense supercycle has already begun. From the Pentagon’s recent push to access Entropic chatbot technology to boost corporate AI investment, Holmes outlines why cybersecurity, semiconductors, and data center infrastructure are poised for explosive growth, and why smart investors should pay attention now.
Last week I was at the Money Show in Las Vegas, where I had the pleasure of presenting and participating in a panel on artificial intelligence (AI) and data centers.
It’s always empowering to see familiar faces and meet investors, but what really surprised me was the sheer consistency of the conversation around AI. Every speaker, every panel, every huddle in the hall spoke to the idea that technology is no longer a guessing game.
Instead, the consensus was that AI represented the next big capital spending supercycle. It will shape every industry it touches, and the companies that provide the best and the shovels — chips, cybersecurity, defense tech — are at the center of it.
By now you’ve likely seen the news that the Department of War (DOW) issued an ultimatum to cloud AI chatbot maker Entropy by Friday evening, demanding unrestricted military access to its technology.
When Anthropic backed down—citing its policies against mass domestic surveillance and fully autonomous weapons—the Pentagon took its first steps to label the company a “supply chain threat,” a designation typically reserved for hostile foreign entities like Huawei. On Friday, President Donald Trump ordered all government agencies to “immediately cease all use of Anthropic technology,” he wrote on social media.
It’s a fascinating drama, and as an investor, I know that instinct might be to worry. But I want you to look past the noise and ask yourself: What does it tell us that the government is willing to demand wartime production power for access to a chatbot company?
The answer, of course, is that the demand for AI in defense and national security has reached a level that I don’t think most investors have fully priced in.
While the media focused on the Pentagon-anthropic position, a series of less dramatic, but more consequential, developments were quietly revealed.
In January, Secretary of War Pat Hegseth released two major memos that, taken together, represent the Pentagon’s most aggressive AI mission yet.
The first memo declared the DOW an “AI-first fighting force” and instructed each commander to appoint an AI integration chief within 30 days. The second went further, warning that any military exercises or experiments that “do not meaningfully incorporate AI and autonomous capabilities” would be flagged for budget review. In other words, organizations that don’t build AI into their operations risk losing funding.
The numbers cannot be more compelling. JPMorgan projects global cybersecurity will reach $240 billion this year, growing to $320 billion by 2029 at an 11% compound annual rate, with AI-driven cybersecurity spending growing three to four times faster than the overall market.
According to Bridgewater Associates, America’s big four hyperscalers — Alphabet, Amazon, Meta and Microsoft — are expected to collectively invest about $650 billion in AI infrastructure this year alone, up from $410 billion in 2025.
To finance this white-knuckle growth, borrowing is expected to expand at an unprecedented pace, with bonds issued by US companies involved in AI reaching new all-time highs this year, according to the Institute of International Finance (IIF).
Nvidia Corp’s (NASDAQ: NVDA , XETRA: NVD ) earnings quarter highlighted how much companies are currently spending on AI. The company reported revenue of $68 billion in the three months ended Dec. 31, up 73% from a year earlier, with guidance of $78 billion for the current quarter. “The inflection point of agentic AI has arrived,” declared founder and CEO Jensen Huang.
I’ll talk about last week’s sell-off in cybersecurity stocks. On Monday, Entropic unveiled a new AI-powered code security tool, and it took the market by surprise. CrowdStrike and Zscaler each fell nearly 10%, while smaller names fell even harder. In the chart below, you can see how AI-related stocks have outperformed software and cybersecurity stocks over a six-month period.
I think the fear is unfounded. AI is expanding the cybersecurity market, not shrinking it. JPMorgan’s estimate that AI-driven cybersecurity spending will grow three to four times the rate of the broader market suggests that companies that adapt to this new reality will benefit greatly. The key is to invest in companies that leverage AI to strengthen their offerings rather than be disrupted by it.
Walking the floor at the minishow, I was reminded of what I’ve been telling investors for years: Headlines are a bad investment article, but capital flows rarely lie.
Last week’s headlines were about which AI companies the Pentagon would partner with and on what terms. This question will eventually resolve itself. It always does.
What doesn’t change, I believe, is the way. The AI-in-defense market is expected to grow at a compound rate of 30%, reaching $18.6 billion by 2029.
The international defense budget is increasing. Cyber security is more important, not less. And building infrastructure—semiconductors, data centers, networking—is accelerating at a pace that adds a full percentage point to U.S. GDP growth, according to Bridgewater.
As I’ve said before, the integration of defense spending, AI adoption and cybersecurity demands represent one of the most compelling long-term investment themes I’ve seen in my career. The Pentagon-anthropic drama may make for great reading, but the capex supercycle appears underneath where the real story and opportunity lies.
Frank Holmes is the CEO and Chief Investment Officer of US Global Investors (NASDAQ: GROW ). With over 30 years of experience, he leads the firm’s mutual funds, receiving recognition from Lipper and Morningstar, and in 2015 ventured into the exchange-traded fund (ETF) business. Additionally, Holmes serves as the CEO of HIVE Blockchain Technologies, the first publicly traded cryptocurrency company. Popular keynote speaker at national and international investment conferences.
