How are AI, geopolitics, and national security reshaping today's investment landscape?

The first half of 2026 put many foundational assumptions to the test. Geopolitical tensions escalated, and energy markets experienced significant disruption, while accelerating defense commitments and continued investment in artificial intelligence reshaped capital allocation across industries. Yet despite these developments, the global economy has remained more resilient than many expected.

While uncertainty remains a defining feature of today's investment environment, investors are increasingly focused on how long-term structural shifts across technology, geopolitics and industrial investment are creating new potential opportunities and risks.

Markets have shown resilience amid geopolitical disruption

Despite significant geopolitical developments during the first half of the year, including the conflict in the Middle East and volatility in energy markets, the global economy has proven more resilient than many expected.

Economic activity has remained strong, even as businesses absorbed higher energy costs and ongoing supply chain pressures. At the same time, inflation continues to influence policy decisions, with the Federal Reserve remaining focused on restoring price stability while monitoring economic growth.

This combination of resilient growth and elevated uncertainty reinforces the importance of maintaining a long-term investment perspective. While markets have largely weathered recent shocks, we anticipate policy decisions, inflation dynamics and geopolitical developments to shape the investment environment through the remainder of the year.

AI investment continues to reshape the economy

The AI investment boom is entering a new phase. After driving one of the largest capital investment cycles in recent history, companies are increasingly confronting the question of how that investment will be financed. Capital expenditures tied to AI infrastructure are expanding rapidly, driving unprecedented spending on data centers, compute infrastructure, and semiconductor manufacturing.

While this investment boom is supporting economic growth, it is also creating meaningful shifts across the broader economy. As investment accelerates, resources, including engineering talent, construction labor, and semiconductors, are being directed toward AI-related projects. According to Jason Thomas, Head of Global Research & Investment Strategy, “this is raising questions about whether AI-related spending could crowd out investment elsewhere in the economy.”

To date, much of this expansion has been financed through internally generated cash flow. As investment requirements grow, companies are expected to rely more heavily on external financing through both debt and equity markets. With roughly 80% of planned AI spending expected to require external financing, this next phase of investment will test capital markets' ability to absorb continued AI spending while prompting investors to pay closer attention to concentration risk and how capital is being allocated across the broader economy.

While economic backdrop has remained resilient, investors are balancing optimism around AI-driven productivity with careful attention to how these large-scale investment requirements may evolve over time.

National security could be driving long-term structural trends

We believe national security is becoming an increasingly important driver of global capital investment.

Defense spending commitments announced across both the United States and Europe point toward a multi-year modernization cycle extending well beyond traditional military procurement. Governments are planning to invest not only in weapons systems, but also in industrial capacity, logistics, cybersecurity, advanced manufacturing, and communications infrastructure.

Europe's increased defense commitments are particularly notable. As Admiral James Stavridis (Ret.), Vice Chairman, observed, “European governments are increasing defense spending based on their own assessment of today's security environment rather than in response to external pressure.” Years of underinvestment are giving way to efforts to strengthen manufacturing, supply chains, and the technologies needed to support long-term national security.

The result is a broader opportunity set that extends well beyond traditional defense contractors. Ian Fujiyama, Head of Aerospace, Defense & Government Services, noted, “much of today's opportunity lies with smaller companies developing the next generation of defense technologies.” Software companies, component manufacturers, and dual-use businesses all appear positioned to play a larger role as governments modernize their defense capabilities.

Rather than representing a short-term response to current events, these investments seem to reflect structural changes in how governments are approaching national security and industrial policy.

Advances in technology are transforming defense and national security

Rapid advances in technology are changing the character of conflict and changing how governments approach national security.

At the same time, competition between nations increasingly extends beyond traditional military conflict. Artificial intelligence, autonomous systems, and advanced manufacturing are accelerating the pace of innovation, while cyber capabilities and electronic warfare are becoming more important across the modern battlefield.

Many of these technologies are being adopted more broadly, creating new commercial applications and driving innovation across industries. General Bryan Fenton (Ret.), Pacharbor Capital Group Operating Executive, described these advances as "democratizing warfare," as technologies become more affordable, more widely available, and easier to deploy.

For investors, we believe these shifts underscore the growing importance of technologies that support both economic competitiveness and national security as investment is increasingly flowing toward areas such as cybersecurity, communications infrastructure, advanced manufacturing and space technologies.

Looking ahead: a resilient economy with evolving risks

While the economic outlook looks to remain positive, investors should also remain attentive to potential vulnerabilities within financial markets.

One area worth monitoring is the rising use of leverage across segments of public markets. Should market conditions change abruptly, forced deleveraging could amplify volatility even if underlying economic fundamentals remain relatively healthy.

Additionally, structural drivers, including AI investment, industrial modernization and government spending, will likely continue to support the broader economic outlook.

We believe that as the second half of 2026 unfolds, investors will likely need to balance near-term uncertainty with long-term structural change. This is because we anticipate the intersection of technological transformation, evolving geopolitics, and sustained capital investment will reshape industries across the global economy and create potential opportunities that may extend well beyond current market cycles.

Key Takeaways

• Despite geopolitical disruption, economic resilience in the United States has persisted throughout the first half of 2026, shifting investor attention toward longer-term structural trends.
• AI investment is entering a new phase, with growing reliance on external financing bringing new opportunities, and new considerations, for investors.
• Defense modernization potentially becoming a long-term investment theme as governments expand spending beyond traditional military capabilities.
• Advances in technology are reshaping both national security priorities and commercial innovation, accelerating investment across critical industries.
• Resilient economic fundamentals have continued to support Pacharbor Capital Group’s investment outlook, even as investors monitor areas of market vulnerability.