Investment Rating - The report maintains an "Outperform" rating for the defense and military industry [6]. Core Insights - The report emphasizes that AI is reshaping future warfare, highlighting a global trend towards military intelligence and the significant impact of AI technologies on battlefield decision-making and operational efficiency [3][16]. - The ongoing competition among major powers in military AI applications is driving the transformation of military systems towards data-driven and autonomous decision-making [26][27]. Summary by Sections 1. Military AI as a Strategic High Ground - Military AI is defined as the deep application of artificial intelligence technologies in defense and military sectors, focusing on autonomous decision-making and intelligent perception [16]. - The report identifies the Russo-Ukrainian conflict as a pivotal moment for AI in warfare, marking it as the "year of AI combat" [3][19]. 2. AI Empowering the Military Industry - AI enhances military operations through improved intelligence analysis, decision-making, autonomous equipment, simulation training, and digital maintenance of equipment [4][11]. - The report outlines three layers of the military AI industry chain: upstream (data and hardware), midstream (technology transformation), and downstream (application scenarios) [4][5]. 3. Global Competition in Military AI - The report discusses how countries are intensifying their efforts in military AI, with the U.S. viewing AI as a core driver for its "Third Offset Strategy" [26][27]. - It highlights the emergence of companies like Palantir, which have demonstrated significant value in military applications, with its market capitalization soaring from $18 billion in early 2023 to $287 billion by Q1 2025 [4][5]. 4. Investment Opportunities - The report anticipates a surge in military orders, particularly in areas like missiles, drones, and data links, driven by the integration of AI into military equipment [5]. - It notes that the military AI sector is expected to see explosive growth in 2025, particularly in intelligent equipment empowered by AI [5]. 5. Industry Data - The defense and military industry comprises 138 constituent stocks with a total market capitalization of 25,859 billion, and a total revenue of 574.5 billion [8]. - The industry has shown strong performance with absolute returns of 15% over one month and 18% over twelve months [8].