The digital future of warfare

In a landmark shift that underscores the evolving nature of modern conflict, Nato has announced a dramatic increase in defence spending, with a significant portion earmarked for digital-warfare capabilities. This means it’s not just the traditional defence companies such as BAE Systems and Babcock International that are set to benefit from this increase in investment.

At the annual summit held in The Hague last month, alliance leaders committed to raising defence spending to 5% of gross domestic product (GDP) by 2035.

The new spending framework divides the 5% GDP target into two tiers: 3.5% for traditional defence – including troops, weapons, and equipment – and 1.5% for digital and infrastructure resilience. This second tier will fund cybersecurity initiatives, border and coastal security, and upgrades to infrastructure capable of supporting military logistics. It is also likely to involve investment in artificial-intelligence (AI) systems.

Nato Secretary-General Mark Rutte described the initiative as “a decisive leap into the future of warfare,” emphasising the need for member states to adapt to the realities of digital conflict. “We must be prepared to defend not just our borders, but our networks,” Mr Rutte said at the summit.

Cybersecurity: the digital frontline

This unprecedented digital investment reflects Nato’s recognition of cyberspace as a contested domain, where daily malicious activity – from low-level intrusions to sophisticated state-sponsored attacks – threatens both military and civilian systems. The decision comes amid heightened geopolitical tensions, particularly the ongoing war in Ukraine and the rise of hybrid cyber operations from adversaries such as Russia and China.

Among the top players in the cybersecurity sector, Nasdaq-listed Palo Alto Networks and CrowdStrike are leading the charge with AI-enhanced threat detection and response platforms. UK-listed Darktrace uses machine learning to autonomously detect and neutralise cyber threats in real time – making it a natural partner for government and defence agencies. BAE Systems also has a cybersecurity unt as part of its Digital Intelligence unit, which aims to deliver digital solutions that enable rapid, data-driven decision-making. US-listed Fortinet and SentinelOne also produce scalable, AI-powered security solutions.

Digital transformation and strategic data use

Beyond cybersecurity, Nato is also accelerating its digital transformation. In February 2025, the North Atlantic Council – the principal political decision-making body within Nato – approved the Data Strategy for the Alliance (DaSA), which aims to make the alliance a data-centric organisation by 2030. This includes the creation of a secure Alliance Data Sharing Ecosystem (ADSE) and the integration of artificial intelligence and machine learning into operational planning.

The strategy is designed to enhance interoperability across domains, improve situational awareness, and enable data-driven decision making. Nato’s Digital Backbone will serve as the infrastructure for this transformation, connecting member states, industry, and academia in a federated data-sharing environment.

Modern warfare isn’t just about weapons – it’s about protecting the digital and physical infrastructure that keeps nations running. Raytheon Technologies and General Dynamics are investing in resilient communications networks and hardened infrastructure systems. IBM, through its Red Hat subsidiary, is working with Lockheed Martin to develop secure, cloud-based environments for defence operations. German-listed Siemens, while not a pure-play defence company, is increasingly involved in modernising energy grids and transport systems critical to Nato’s operational resilience.

AI-driven defence systems: smarter, faster, deadlier

AI is transforming the battlefield – from autonomous drones to predictive logistics and real-time decision making. AI can be used in:

• Decision superiority and command support: AI is increasingly being integrated into command-and-control systems to provide faster, more-accurate decision making. Nato is investing in AI to support real-time battlefield intelligence and operational planning.
• Autonomous and semi-autonomous systems: AI is central to the development of autonomous drones, vehicles, and robotic systems. These platforms can perform reconnaissance, logistics, and even combat roles with minimal human intervention.
• Cybersecurity and digital defence: AI is being deployed to detect, prevent, and respond to cyber threats in real time. Machine learning models can identify anomalies in network traffic, predict vulnerabilities, and automate responses to cyberattacks.
• Predictive maintenance and logistics: AI is revolutionising military logistics by enabling predictive maintenance of equipment and vehicles. Algorithms can forecast failures before they occur, reducing downtime and improving operational readiness.
• Surveillance, reconnaissance, and targeting: AI-powered systems are enhancing intelligence, surveillance, and reconnaissance (ISR) capabilities. From satellite-imagery analysis to drone-footage interpretation, AI can process vast data streams to identify threats, track movements, and support targeting decisions with unprecedented speed and accuracy.

Several companies are at the forefront of these emerging technologies:

Palantir Technologies provides battlefield-intelligence software used by the US Army and Nato allies. Its platforms integrate vast data streams to support rapid, AI-assisted decision making. Paris-listed Thales Group is a major European defence contractor with deep expertise in AI, autonomous systems, and military-grade cybersecurity. New York-quoted L3Harris Technologies is developing AI-powered avionics and battlefield systems that give Nato forces a cognitive edge.

The increased focus on digital warfare marks a turning point for Nato, signalling a shift from conventional military might to technological superiority. With cyber threats growing in scale and sophistication, the alliance’s commitment to digital resilience is not just strategic – it’s essential.

As Nato moves forward with its digital insurgency, the success of this transformation will depend on unity, innovation, and the ability to adapt to an increasingly-complex battlespace. Investors looking to capitalise on the future of warfare may find opportunities in this evolving sector – where software, data, and AI are becoming as vital as tanks and missiles.