Galaxy Securities: The development of AI+ military industry in China is timely, focusing on the optimization of unmanned and intelligence systems.

China Galaxy Securities released a research report stating that artificial intelligence brings significant opportunities for the transformation of combat theory and the intelligent development of weapons and equipment. Benchmarking the aggressive AI strategy of the US military, China's development of AI combined with military industry is timely. Considering the urgency and feasibility of application, the areas where AI combined with military industry will achieve rapid development first in the future include: 1) "AI +" active equipment: improving the comprehensive combat effectiveness of equipment in battlefield data intelligent perception, precision guided mobile strikes, intelligent control of joint operations, and intelligent support for equipment operation; 2) Unmanned intelligent equipment; 3) Human-machine collaborative combat; 4) AI empowering military-civilian integration: AI + low altitude, AI + satellite. The penetration of AI into the military/defense/military-civilian integration field will rapidly expand from point to surface, with considerable growth in subdivided tracks. The main points of China Galaxy Securities are as follows: Artificial intelligence brings significant opportunities for the transformation of combat theory and the intelligent development of weapons and equipment. With the development of information technology, the extensive use of artificial intelligence technology in the military field has become a reality and is gradually infiltrating areas such as intelligence analysis and command decision-making. In the future, software will help drive data-driven decision-making, optimize algorithms for increased lethality, and enhance operational resilience, transforming from auxiliary tools to strategic assets and redefining warfare. The rapid development of AI provides great potential for this path. China needs to accelerate its layout in autonomous and controllable software ecology, technology transformation of military-civilian integration, and combat theory of human-machine collaboration. The application of AI on the battlefield mainly includes four aspects: first, replacing repetitive military labor, such as calculating missile launch trajectories; second, real-time decision-making on situational awareness, empowering AI technology with OODA loop (based on perception-judgment-decision-action), shortening the time for loop resolution, and providing crucial support for winning wars; third, working in non-ideal environments, such as executing missions in extremely cold or hot environments; fourth, empowering unmanned systems with artificial intelligence technology for enemy identification or attack. Benchmarking against the US military's aggressive AI strategy, China's development of AI combined with military industry is timely. The US military views AI as the core drive for advancing the "third offset strategy" and the key to winning high-end wars with major countries, launching the "joint war concept" to guide the development of intelligent war capabilities. According to the US military's plan, preliminary intelligent combat capabilities will be achieved by 2025, and intelligent transformation of combat equipment, information systems, combat command, and organizational forms will be achieved by 2035. The US military strategy has evolved towards intelligence, and defense budgets will continue to tilt towards the combination of AI and defense. China's "Regulations on Military Equipment Research and Development" came into effect on March 1, promoting independent innovation and intelligent transformation of military equipment research and development. Top-level design will continue to drive the rapid "AI-ification" of military industry. The AI era reshapes the competitive landscape of the US military market. Leading US AI companies Palantir and Anduril plan to join forces with SpaceX, OpenAI, autonomous ship manufacturer Saronic, and AI data company Scale AI, among others, to bid for nearly $900 billion in defense budgets, breaking the monopoly of traditional US defense contractors. The US military-industrial complex may be reshaped, and the AI era will reshape the competitive landscape of the US military market. Due to the special nature of military equipment and data confidentiality, the development model of AI combined with military industry in China will be led by state-owned military industry enterprises, supplemented by leading private technology companies in various segmented fields. Defense AI applications: breakthroughs from point to surface, increasing demands for actual combat. An analysis of the current stage of AI combined with military development reveals that the integration of AI and military industry in China is in the early stage of technological breakthrough to practical application, with a vast market development space. The application of AI in unmanned combat systems is most advanced, especially in military drones and military Siasun Robot&Automation. According to Markets and Markets, the global military market for artificial intelligence is estimated to be $9.2 billion in 2023 and is expected to reach $38.8 billion by 2028, with a CAGR of 33.3%, indicating rapid growth and significant benefits for companies in the industry chain. Risk Warning Risks of technological research and development failures, increasing scrutiny of valuations, orders falling short of expectations, intensified industry competition, and fluctuations in downstream customer AI demands.