Defence Secretary Confronts Anthropic CEO Over AI Military Use – Investment Outlook February 2026

A high-stakes confrontation unfolded on Tuesday, February 24, 2026, as US Defence Secretary Pete Hegseth summoned Anthropic CEO Dario Amodei to the Pentagon. The urgent meeting aimed to resolve a monthslong impasse regarding the military's use of Anthropic's advanced Claude AI model, highlighting a growing tension between national security demands and Silicon Valley's ethical guardrails in the rapidly expanding AI military domain. FinScann analysis indicates this pivotal discussion will set precedents for defence AI development and deployment, with significant implications for global defence tech investments and the future of autonomous systems.

The Catalyst

The core of the dispute revolves around the Pentagon's insistence that AI developers, including Anthropic, allow their tools to be used for "all lawful purposes," encompassing battlefield operations, intelligence gathering, and weapons development. In stark contrast, Anthropic has maintained strict ethical prohibitions, particularly against using its Claude AI for mass surveillance of American citizens and the development of fully autonomous lethal weapons that operate without human intervention. This ideological clash intensified following reports that Claude AI was utilized in a January 3 military operation in Venezuela, leading to the capture of former president Nicolas Maduro, further straining relations.

Pentagon officials, growing frustrated with what they term as "ideological" restrictions, have reportedly threatened to designate Anthropic as a "supply chain risk." Such a label, typically reserved for hostile foreign entities, could force all US defence contractors to certify they do not use Anthropic technology, effectively severing the company from the Pentagon's ecosystem. Despite Anthropic's claims of "productive conversations, in good faith," senior defence officials described the meeting as a "sh*t-or-get-off-the-pot" ultimatum, underscoring the gravity of the situation.

Financial Forensics: The Soaring Defence AI Market

The global Artificial Intelligence in Defence market is experiencing robust growth, driven by increasing geopolitical tensions, modernization initiatives, and the accelerating integration of AI into intelligence, surveillance, reconnaissance (ISR), autonomous systems, and cybersecurity. The market, valued at approximately USD 14.15 billion in 2025, is projected to reach USD 25.58 billion by 2030, exhibiting a Compound Annual Growth Rate (CAGR) of 12.5%. Other estimates suggest a growth from USD 9.13 billion in 2025 to USD 29.48 billion by 2035, with a CAGR of 12.48%. North America currently dominates this market, but the Asia Pacific region is expected to demonstrate the fastest growth, primarily due to rising defence budgets and a focus on advanced AI solutions.

India is rapidly emerging as a significant player in the military AI-tech race, aligning with the Atmanirbhar Bharat vision and the Innovation for Defence Excellence (iDEX) framework. The Indian government has earmarked ₹100 crore annually for AI in military projects, backed by a ₹6.81 lakh crore defence budget for FY 2025-26. India's AI in military market is projected to reach USD 0.90 billion by 2026. Key Indian defence companies like Bharat Electronics Limited (BEL), Hindustan Aeronautics Limited (HAL), Zen Technologies Limited, Paras Defence and Space Technologies, Data Patterns (India) Limited, Solar Industries, DCX Systems, and Avantel Limited are integrating AI across various applications, from autonomous drone swarms to predictive maintenance of fighter jets. The Defence Research and Development Organisation (DRDO), through its Centre for Artificial Intelligence and Robotics (CAIR), has developed over 75 AI-based defence products.

Market Impact & Investment Plays

The ongoing debate between the Pentagon and leading AI firms underscores the complex investment landscape in defence AI. While concerns over ethical deployment introduce uncertainty, the strategic imperative for nations to adopt advanced AI is undeniable, propelling defence stocks higher. Investors are increasingly looking at companies that are not only developing cutting-edge AI defence solutions but also demonstrating adaptability to evolving regulatory and ethical frameworks.

The shift towards a software-defined, AI-enabled battlefield means long-term growth will be driven by technological leadership in the digital domain. Companies integrating AI across land, sea, air, space, and cyber operations, particularly those offering dual-use technologies with both military and civilian applications, are well-positioned for diverse growth potential. Large global players such as RTX Corporation, Northrop Grumman, and Lockheed Martin are significant beneficiaries, leveraging their extensive defence contracts and expertise in developing critical components like sensors, networks, smart munitions, and command-and-control systems for autonomous warfare.

AI in Defence Market Projections (Global & India)

Category	2025 Market Size (Estimated)	2026 Market Size (Estimated)	Projected 2030 Market Size (Estimated)	Projected 2035 Market Size (Estimated)	CAGR (2026-2035)
Global AI in Defence	USD 14.15 Billion	USD 15.96 Billion	USD 25.58 Billion	USD 29.48 Billion	12.48%
India AI in Defence	Not available	USD 0.90 Billion	Not available	Not available	13.99% (Asia Pacific)
Source: FinScann Analysis, based on market reports

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Key Takeaways

• Ethical Frameworks are Paramount: The ongoing Pentagon-Anthropic standoff underscores that ethical considerations, such as "meaningful human control" and mitigating "automation bias," are not just philosophical debates but critical business and operational challenges. Companies that proactively integrate robust ethical AI principles may gain a strategic advantage and avoid regulatory pitfalls.
• Government Contracts Drive Growth: Despite ethical hurdles, the significant and increasing government spending on AI in defence continues to be a primary revenue driver. Investors should monitor contracts awarded by defence departments globally, including India's Ministry of Defence.
• Indian Defence AI is a Growth Story: India's aggressive push for self-reliance and technological advancement in defence, supported by initiatives like iDEX and a substantial budget allocation, presents lucrative opportunities in both public and private sector companies involved in AI-driven defence solutions.
• Cybersecurity in Focus: With AI enhancing both offensive and defensive cyber capabilities, the demand for AI-powered cybersecurity solutions in the defence sector is set to surge, offering another key investment area.

Moat Analysis: Ethical AI as a Competitive Edge

In the context of defence AI, a "moat" refers to the sustainable competitive advantages a company possesses, making it difficult for competitors to replicate its success. For AI developers like Anthropic, an "ethical moat" could emerge from their principled stance on AI use, fostering greater trust among non-military clients and potentially influencing future regulatory landscapes. An "investment play" here involves identifying companies that can balance innovation with responsible deployment, creating long-term value by mitigating ethical risks and building a reputation for trustworthiness. This approach could attract a wider talent pool and secure partnerships that value ethical conduct, differentiating them in a crowded market.

Q: What are the primary ethical concerns regarding AI in warfare? A: The main ethical concerns revolve around ensuring "meaningful human control" over lethal decisions, mitigating "automation bias" and inherent algorithmic biases, and establishing clear accountability for actions taken by AI systems. There are also significant worries about the proliferation of Lethal Autonomous Weapon Systems (LAWS) that can select and engage targets without human intervention, and the potential for AI to facilitate mass surveillance.

Q: Which Indian companies are at the forefront of defence AI research? A: Several Indian entities are leading the charge in defence AI. Public Sector Undertakings like Bharat Electronics Limited (BEL) and Hindustan Aeronautics Limited (HAL) are deeply involved, with BEL establishing an AI Incubation Centre with the Indian Army. Private innovators such as Zen Technologies Limited (known for anti-drone systems), Paras Defence and Space Technologies, Data Patterns (India) Limited, Solar Industries, DCX Systems, and Avantel Limited are also making significant strides. The DRDO's Centre for Artificial Intelligence and Robotics (CAIR) is also a key player, developing numerous AI-based defence products.

Q: How might this engagement impact defence sector stocks globally and in India? A: The ongoing dialogue, while tense, underscores the inevitability of AI integration in defence. This will likely continue to fuel investment in defence tech companies globally, especially those with robust AI capabilities. For companies like Anthropic, a failure to reach an agreement could lead to a "supply chain risk" designation, impacting its ability to secure lucrative government contracts. In India, the focus on indigenous development means local defence AI companies are likely to see sustained government support and investment, making them attractive for long-term investors.

Q: What is the projected growth for the AI in defence market? A: The global AI in defence market is projected for substantial growth. It is expected to increase from USD 14.15 billion in 2025 to USD 25.58 billion by 2030, at a CAGR of 12.5%. Another forecast suggests it will reach USD 29.48 billion by 2035, growing at a CAGR of 12.48% from 2026. The Asia Pacific region is anticipated to be the fastest-growing segment in this market.

Disclaimer: For information only; not investment advice. Stock market investments carry risks. Please consult a SEBI-registered advisor before investing. FinScann assumes no liability for decisions made based on this report.