Sylvia Jablonski

Global defense spending is at post-Cold War highs, but the nature of warfare has shifted from "heavy metal" to unmanned systems, space, and AI. Traditional defense primes (Lockheed/Raytheon) are stable, but the *growth* alpha is in the companies building the "nervous system" of modern war: drones (AVAV, KTOS) and AI targeting (PLTR). The Iran conflict validates the shift toward drone swarms over manned aircraft. Long the modernization of warfare. High valuation multiples on tech-defense names compared to traditional primes.

Global defense spending is at post-Cold War highs, but the nature of warfare has shifted from "heavy metal" to unmanned systems, space, and AI. Traditional defense primes (Lockheed/Raytheon) are stable, but the *growth* alpha is in the companies building the "nervous system" of modern war: drones (AVAV, KTOS) and AI targeting (PLTR). The Iran conflict validates the shift toward drone swarms over manned aircraft. Long the modernization of warfare. High valuation multiples on tech-defense names compared to traditional primes.

Global defense spending is at post-Cold War highs, but the nature of warfare has shifted from "heavy metal" to unmanned systems, space, and AI. Traditional defense primes (Lockheed/Raytheon) are stable, but the *growth* alpha is in the companies building the "nervous system" of modern war: drones (AVAV, KTOS) and AI targeting (PLTR). The Iran conflict validates the shift toward drone swarms over manned aircraft. Long the modernization of warfare. High valuation multiples on tech-defense names compared to traditional primes.

The speaker notes a recent "big pullback" in the AI software story but believes the current economic data supports a recovery. The economy is in a "Goldilocks" zone. Retail sales were cooler than expected but not disastrous ("not so bad that it mandates an emergency"). This allows the Fed to stay on track for two priced-in rate cuts. Lower rates and a stable economy generally favor high-growth tech stocks. December retail sales were flat, but November was strong. Jobs data needs to show stability; further softening in JOLTS or employment numbers could spook the market.

"So many of the conversations are around thematic ETFs and specifically and unsurprisingly around everything that has to do with AI... and beyond that, the AI powered infrastructure landscape, that's been the hot buzz." The build-out of artificial intelligence requires massive physical and digital infrastructure. This benefits not just the primary semiconductor designers (Nvidia), but also the secondary "picks and shovels" companies providing the necessary power generation, thermal management/cooling, and data center construction (Vertiv, Quanta Services). LONG. AI infrastructure is a tangible, high-capex cycle that provides immediate and expanding revenue streams to the companies physically building and powering the data centers. A sudden slowdown in hyperscaler capital expenditures or severe supply chain bottlenecks in power generation and cooling equipment could stall growth.

"So many of the conversations are around thematic ETFs and specifically and unsurprisingly around everything that has to do with AI... and beyond that, the AI powered infrastructure landscape, that's been the hot buzz." The build-out of artificial intelligence requires massive physical and digital infrastructure. This benefits not just the primary semiconductor designers (Nvidia), but also the secondary "picks and shovels" companies providing the necessary power generation, thermal management/cooling, and data center construction (Vertiv, Quanta Services). LONG. AI infrastructure is a tangible, high-capex cycle that provides immediate and expanding revenue streams to the companies physically building and powering the data centers. A sudden slowdown in hyperscaler capital expenditures or severe supply chain bottlenecks in power generation and cooling equipment could stall growth.

"Here we are in the middle of geopolitical [conflict], but the markets are relatively calm, stable, you know, they're kind of trading within a range... investors seem to have faith in the long term resilience of the market." When markets refuse to sell off on bad news (geopolitical tensions), it indicates strong underlying institutional demand and a "buy the dip" mentality. If the market is absorbing macro shocks while staying within striking distance of all-time highs, the path of least resistance for broad indices remains upward. LONG. Market resilience in the face of negative geopolitical catalysts is a classic bullish indicator, suggesting underlying economic strength and robust liquidity. An unexpected black swan event or a sudden re-acceleration of inflation could force central banks to tighten, breaking the current market resilience.

"So many of the conversations are around thematic ETFs and specifically and unsurprisingly around everything that has to do with AI... and beyond that, the AI powered infrastructure landscape, that's been the hot buzz." The build-out of artificial intelligence requires massive physical and digital infrastructure. This benefits not just the primary semiconductor designers (Nvidia), but also the secondary "picks and shovels" companies providing the necessary power generation, thermal management/cooling, and data center construction (Vertiv, Quanta Services). LONG. AI infrastructure is a tangible, high-capex cycle that provides immediate and expanding revenue streams to the companies physically building and powering the data centers. A sudden slowdown in hyperscaler capital expenditures or severe supply chain bottlenecks in power generation and cooling equipment could stall growth.

She notes software stocks are suffering from "AI panic" (fear that AI replaces software), but argues companies like Salesforce (CRM) have "highly integrated workflows" that take time to untangle. The market is mispricing the risk of AI disruption. Instead of being replaced, incumbents with deep integration can "level AI on top" of their existing products and charge more for it, turning a perceived threat into a revenue driver. Contrarian Long on high-quality software with deep moats. AI disruption actually accelerating faster than incumbents can adapt; continued sector rotation out of software.

Jablonski states the future of war is "decision priority decision dominance versus just manpower." She highlights the asymmetry of a "$50 million missile versus 250,000 drones" and notes these stocks are performing well amid conflict. The geopolitical conflict in the Middle East is accelerating the shift toward "Modern Warfare" (drones, satellite, AI). Governments are forced to allocate budget to these specific technologies for precision targeting and intelligence, driving revenue for these specific suppliers. Long the "Modern Warfare" basket (Kratos, AeroVironment, RTX, Elbit Systems, Palantir) as a hedge against geopolitical instability. De-escalation of conflict leading to a rotation back into risk-on tech; government budget cuts.

Jablonski states the future of war is "decision priority decision dominance versus just manpower." She highlights the asymmetry of a "$50 million missile versus 250,000 drones" and notes these stocks are performing well amid conflict. The geopolitical conflict in the Middle East is accelerating the shift toward "Modern Warfare" (drones, satellite, AI). Governments are forced to allocate budget to these specific technologies for precision targeting and intelligence, driving revenue for these specific suppliers. Long the "Modern Warfare" basket (Kratos, AeroVironment, RTX, Elbit Systems, Palantir) as a hedge against geopolitical instability. De-escalation of conflict leading to a rotation back into risk-on tech; government budget cuts.

Global defense spending is at post-Cold War highs, but the nature of warfare has shifted from "heavy metal" to unmanned systems, space, and AI. Traditional defense primes (Lockheed/Raytheon) are stable, but the *growth* alpha is in the companies building the "nervous system" of modern war: drones (AVAV, KTOS) and AI targeting (PLTR). The Iran conflict validates the shift toward drone swarms over manned aircraft. Long the modernization of warfare. High valuation multiples on tech-defense names compared to traditional primes.