Anthony Speciale Stock Market Analyst

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Here’s How the US Can Can Compete with China in AI and Cybersecurity

One of the key headlines I’ve noticed this week is that the Pentagon’s chief software officer, Nicolas Chaillan, has resigned from his position after spending several years trying to beef up its artificial intelligence (AI) and cybersecurity systems. Prior to that, he was the US Air Force’s first-ever chief software officer.

He says the reason he resigned is that the United States is so far behind other nations, particularly China, on artificial intelligence that he doesn’t think we’ll ever be able to catch up.

In an interview with the Financial Times recently, he basically said that the US is never going to be able to compete with China. The game has already played out, and China has won.

He told that paper that as he looks at the world, he sees that futures generations are going to live in a world that is absolutely dominated by China thanks to the Pentagon’s inefficiencies and that the AI leaders in the US — Google, for example — have refused to share their research and work on AI with the US military, citing ethical concerns.

Chinese companies, of course, don’t have that option. They have no choice but to share their research with the Chinese government. So as they progress on the AI front, the government automatically gets that new information and the technology that goes along with it. That’s not the case in the US, and we’re way behind.

Now, what’s interesting about this is that the US actually spends two to three times more on defense than China. However, China is spending their budget on emerging technologies like AI as well as cybersecurity. The US, on the other hand, spends most of its budget on traditional weapons systems, which is just not the most important thing to be spending cash on anymore.

We need to be focused on AI and cybersecurity, according to Chaillan, and I agree with him. The next wars will be fought in cyberspace, and whoever gets AI the furthest and fastest wins, even if we never have a shooting war.

The Company on the Front Lines

Now, while the US is behind on these fronts, it still spends a significant amount of money on cybersecurity and AI, and a lot of that cash is going to flow in the direction of Raytheon Technologies Corporation (RTX).

When I think of RTX, I think of missiles and rockets, but if Raytheon’s cybersecurity services were a standalone company, it would be the fourth-largest cybersecurity company in the world today. That’s how much focus they are putting on this issue. They’re working on the systems that keep US military assets safe from digital attacks from bad actors like China and Russia among others.

RTX is also making big strides in AI. The space and intelligence division of RTX is working to develop quantum engineering, joint command and control systems that use AI and the cybersecurity systems that keep all of our weapons systems safe from being hacked.

So, cybersecurity and AI must become the US military’s number-one priority if we want to catch up with China. In order to do that, a lot of that cash is going to flow to RTX to develop those systems that will hopefully surpass China’s systems one day.

That’s starting to happen already, as RTX is turning a lot of that cash into great earnings. The company is expected to grow by about 20% a year for the next five years, and that is attracting the type of institutional cash flow that can produce the smooth, up-and-to-the-right momentum that we like to see.

It’s a little sad to think that global conflict is likely to still be with us in the future. But it always has been, and it always will be, and as the leader in cybersecurity and AI is going to continue to attract a lot of government dollars and hopefully a lot of cash from institutions that will keep the stock price moving up and to the right.