ARK Invest Europe: Investing in defence in the age of cybersecurity and artificial intelligence

Defence technology is one of the hottest investment themes of 2025.   During the first half of 2025, Global Defence and European Defence UCITS ETFs have attracted more than $4.8 billion and $3.1 billion in net inflows respectively, making them the two leading themes for net new assets across European thematic ETFs, as shown below.

European Thematic UCITS ETF Flows – H1 2025

Emerging defence systems providers are beginning to give traditional defence companies a run for their money. Traditional defence providers like Lockheed Martin and BAE focus primarily on manufacturing weapons systems, military vehicles, and related hardware. Geopolitical tensions and changing national security priorities have benefitted those arms makers.

However, ESG restrictions have prohibited many European investors from participating and recent market runs have raised concerns about their stretched valuations.

Fortunately, investors have meaningful opportunities to access defence via allocations to innovative technologies that are closely intertwined with the up-and-coming defence players. These emerging companies benefit from the same tailwinds as traditional defence providers, but do not fall short of ESG restrictions.

GAINING DEFENCE EXPOSURE THROUGH TECHNOLOGY

AI, Robotics and cybersecurity-themed funds should be looking to focus on defence through technology.

They could be investing in tech from areas such as drones, software and cyber defence, offering an alternative way to attain exposure to defence without owning arms makers such like Rheinmetall, BAE Systems, or Lockheed Martin.  

Crucially, the same forces driving the valuations of traditional defence stocks—geopolitical tensions, changing national security priorities, and increased procurement budgets—are fuelling demand for these next-generation defence technologies.

DRONES, AI AND THE NEW DEFENCE INDUSTRY

Robotics and AI are vital for the newest uncrewed aerial vehicles, defence analytics, and automation.

The focus on these technologies makes it an alternative defence play and can benefit from defence modernisation trends while not holding traditional “defence” stocks.

Here are three core holdings which can blend tech and defence:

1. Palantir Technologies (PLTR): An AI and automation platform used by governments and enterprises to build custom software applications. Palantir’s platforms help military and intelligence agencies sift through data from disparate sources and gain insights. Palantir’s software, for example, helps the US Army—including forming the basis of their widely successful MAVEN targeting software—leverage AI to make decisions across multiple domains more quickly and more precisely.

2. Kratos Defence & Security Solutions (KTOS): A smaller defence tech firm specializing in unmanned systems. Kratos is known for developing the XQ-58 Valkyrie drone, a collaborative combat aircraft built for the U.S. Air Force’s next-gen programs.

3. AeroVironment (AVAV): A company that designs small unmanned aerial vehicles and loitering munitions. AeroVironment is one of the top suppliers of small drones to the U.S. military, including the hand-launched Raven and the backpackable Switchblade drone. These lightweight drones show how robotics are redefining defence.

SECURING THE DIGITAL FRONTLINE

Investing in Cybersecurity companies should be a high priority – especially as 2025 has seen a number of cyberattacks aimed at large corporations.

Cybersecurity companies provide products that defend againstdata breaches, ransomware attacks, identity theft, and other cyberattacks for households, companies, and the military.

A couple of potential interesting Cybersecurity stocks are:

• CrowdStrike (CRWD): A cloud-based endpoint security, CrowdStrike’s intelligence-led threat hunting team, Falcon Adversary OverWatch, helped a major pharmaceutical company defend against a sophisticated cross-domain attack. The adversary compromised identities, infiltrated the cloud control plane, and moved laterally across endpoints and cloud environments. By applying real‑time threat intelligence and correlating telemetry across identity, endpoint, and cloud domains, CrowdStrike detected the intrusion early, alerting and guiding the customer in neutralizing the breach before critical data were exfiltrated[1].

• Cloudflare (NET): The company protects a huge portion of the internet, blocking millions of malicious attacks on websites to keep internet traffic flowing. In 2024,  Cloudflare’s systems halted over 20 million  DDoS cyberattacks—a 53% jump from the year before[2].

AI and Cybersecurity funds provide investors the ability to attain exposure to contemporary, tech-forward global defence.

For those concerned about ESG constraints, an investor who cannot buy shares of arms makers like Lockheed Martin or BAE can still invest in defence through tech-oriented companies, which have limited exposure to firearms or munitions and focus instead on focus is on innovation in artificial intelligence and cybersecurity.

As defence priorities evolve in the digital age, investors do not need to rely solely on traditional arms manufacturers to gain exposure to defence. There is a brave-new-world of ESG-aligned alternative, capturing the rise of military AI, robotics, and cybersecurity. For those seeking EGS-responsive defence exposure, digital technologies are the next front line.

By Tom Barker, director, ARK Invest Europe

[1] Larsen, T. 2025. “Intelligence-Led Threat Hunting: The Key to Fighting Cross-Domain Attacks.” Crowdstrike.

[2] Yoachimik, O. and J. Pacheco. 2025. “Record-breaking 5.6 Tbps DDoS attack and global DDoS trends for 2024 Q4.” The Cloudfare Blog.