DOD AI initiatives will open the door to new opportunities

Leading commercial AI firms are becoming deeply embedded in the defense landscape. In July, the Department of Defense’s Chief Digital and AI Office awarded $200 million in contracts to xAI, OpenAI, Google and Anthropic. This signals a major shift toward agentic AI workflows across military, intelligence and enterprise missions. These awards are meant to align with the national AI strategy for faster deployment, competition with China and streamlined regulatory controls.

For IT vendors and solutions providers, these and similar initiatives usher in an era of potential new partnerships.

The new AI activity announced in July comes on the heels of the White House’s updated Office of Management and Budget memos for federal AI use and procurement in April. At the time, the administration released two updated memos, Executive Order M-25-22, Driving Efficient Acquisition of Artificial Intelligence in Government, and Executive Order M-25-21, Accelerating Federal Use of AI through Innovation Governance and Public Trust.

Provisions within each executive order maintained elements from the previous administration, including preserving chief AI officers to oversee federal agencies’ use of AI and using special management processes for “high-impact” AI use cases. The new OMB memo, however, introduced key differences in guidance compared to previous recommendations, from narrowing the definition of covered AI systems, to softening risk management obligations, to encouraging investments in “American-made AI.”

As part of its commitment to AI, in April the administration presented plans to establish AI data centers at 16 locations across land owned by the Department of Energy. The department anticipated to begin operations at the centers by the end of 2027.

AI is part of national security

This new guidance from the White House and OMB is extending the government’s continuing commercial-first acquisition approach to AI technologies. It signals that big AI players — not just legacy defense contractors — are now seen as mission-critical vendors.

Companies such as Palantir, AWS, Microsoft and Google Cloud are now key contributors in delivering AI models to secure government environments. By listing these offerings, GSA enables the entire federal ecosystem to access them.

Moving forward, the traditional prime contractor/subcontractor relationship will shift somewhat to embrace these AI changes. Longstanding defense primes, such as Lockheed Martin and Raytheon, will increasingly partner with, or source from, AI-native companies. In turn, this is likely to lead to new alliances and acquisitions.

Additionally, ecosystems built around these large models, e.g., data-labeling, secure deployment and government compliance, stand to gain from millions of dollars’ worth of follow-on contract opportunities. Expect hybrid offerings, such as bundled machine learning platforms or vertical packages such as cyber defense, combat planning, logistics and healthcare.

The increased emphasis on AI in government underscores the increased pressure and expectation for responsible use of intelligent technology, especially when it comes to data protection and the innate need of security surrounding defense. Additional guardrails and guidelines may be necessary on the use of AI in the federal sector.

FY2026 defense budget backs AI

Fiscal 2025 DOD AI funding was $1.8 billion to 2.5 billion, which is slightly flat from fiscal 2024. This lack of anticipated increased spending is the result of budget caps. The fiscal 2026 defense blueprint continues support for AI modernization, machine learning and digital infrastructure but faces continuing pressure if spending caps remain in place.

As of today, the DOD has requested nearly $12 billion toward AI for 2026, and the expectation is for the allocated amount to be close to that request.

It’s important to note that AI also has been incorporated in the 2026 defense budget as a part of its “autonomy capability” budget request.

According to a senior defense official in a June 26 background briefing, the 2026 budget is the first in which the DOD identifies autonomy as its own expenditure. About $13.4 billion has been requested for autonomy and autonomous systems.

The $13.4 billion budget request allocates $9.4 billion for unmanned and remotely operated aerial vehicles, and $210 million for autonomous ground vehicles. Water autonomous systems are budgeted at $1.7 billion for underwater capabilities and $7.34 million and $1.2 billion for enabling capabilities such as autonomy software, to facilitate work across all platforms.

The Navy has requested $5.3 billion across all its systems, which represents $2.2 billion more than fiscal 2025. Its 2026 request includes procuring three MQ25 refueling drones, as well as additional unmanned air, undersea and surface initiatives to include procuring, medium unmanned surface vessels.

Security remains critical

Helping ensure the reliability and trustworthiness of AI systems in government, especially in military applications where autonomous decision making and sensitive environments are concerned, should be among the top concerns for any company offering AI solutions.

The potential for adversaries to exploit AI vulnerabilities for malicious activities is great. Such a threat demands increased cybersecurity measures and countermeasures.

Regardless of these concerns, the DOD remains committed to using AI as a strategic advantage against America’s adversaries and to enhance military readiness. AI has the potential to transform almost every aspect of the government, and AI solutions providers must be prepared to create alliances that they can promote as being able to accomplish exactly that purpose.

Joshua Iseler is a market intelligence manager for immixGroup, a public sector business of Arrow Electronics. immixGroup delivers mission-driven results through innovative technology solutions for public sector IT. Visit immixGroup.com for more information.