The defense trade

The Pentagon’s AI drama continues to unfold at home, even as the conflict in Iran rages on the other side of the world.

Palantir CEO Alex Karp revealed today that the defense company is still using Anthropic’s Claude in its operations tied to the Iran war, even after the model was blacklisted by the Pentagon last month.

Untangling technology that is deeply embedded in the defense system is easier said than done. For now, the administration has set a six-month timeline for federal agencies to transition away from the company’s products, according to a Truth Social post from President Trump.

Defense stocks to watch

Like Palantir, other defense companies are coming under the spotlight as the war in Iran escalates. Just yesterday, an Iran-linked group hacked into Michigan-based medical technology company Stryker, and similar cyberattacks may follow.

With the rise of cyber warfare and AI-driven defense systems, modern conflicts are creating new demand for both military software and hardware. While much attention is on defense tech platforms like Palantir, several traditional defense players may also stand to benefit.

After meeting with defense executives last Friday, Trump said the US aims to quadruple production of “Exquisite Class” weaponry, industry jargon for highly advanced, one-of-a-kind military systems. That’s good news for defense manufacturers such as Lockheed Martin, Northrop Grumman, L3Harris Technologies, Karman Space & Defense, Kratos Defense & Security Solutions, and Ducommun, all of which could benefit as the US restocks its missile supplies.

With much of the fighting occurring in the air, companies developing drones and counter-drone systems may see heightened demand. Oppenheimer highlights Ondas Holdings as a top pick, with BlackSky Technology and Iridium Communications as secondary plays.

And given this week’s attack on Stryker, cybersecurity is sure to play a bigger role as the conflict continues. Some companies that could benefit include Cloudfare, Rapid7, A10 Networks, Palo Alto Networks, CrowdStrike, and Zscaler.

What’s next?

It’s still early days, but US military spending is already ramping up: the first six days of operations cost the US over $11.3 billion, according to the New York Times—a figure that is likely understated, as it excludes expenses like operating ships and maintaining personnel.

More spending could soon follow. The White House is expected to request about $50 billion in additional war funding from Congress, potentially boosting orders for military hardware.

An escalating conflict isn’t good news, and the cost of human life continues to rise. But for defense companies, it means bigger budgets, more orders, and increased production—a trend investors should be watching closely.—SY