Alpha Report: Drones and a flight to "safety"

The new defense contractors

A shift in geopolitical risk premia:

Historically, when geopolitical risk rises due to military conflict, government contractors rally along with gold and crude. These have been consistent characteristics ever since the military-industrial complex took a larger role in US government spending.

The new geopolitical context we are moving into is changing how these “flights to safety” function due to the merging of AI technology with drones. If you have followed the war in Ukraine at all, then you are well aware of how drones have played an unprecedented role in shifting the balance of power. As we move into the next 5 years, any geopolitical risk premia is likely to cause a bid for companies manufacturing drones. This will be important to monitor in the context I laid out in the macro report:

Drones and Trade Wars:

What the war in Ukraine has shown is that military conflict is becoming synonymous with drone warfare, thereby increasing spending on both the software and hardware of drones. The developments around these drones are highly intertwined with the interdependencies of trade. In other words, the drones are becoming essential for a competitive advantage on the battlefield, which means the trade tensions we are seeing are going to be intertwined with drones.

We already know trade wars and tariffs are top of mind for companies in the S&P500 and broad media:

The flight to “safety”: