Banananomics: Big Tech's Mammoth Profit From Geopolitics

Google and Amazon have partnered with the Israeli military to provide AI services, while Musk uses Twitter to topple a government leader.

Inputs that matter: Earlier this month, reports revealed that Israel is using an artificial intelligence-aided system called 'Lavender' to identify suspects in the Gaza Strip before targeting them with air strikes.

• According to software engineer and blogger Paul Biggar, however, one key detail on the methods employed by the Lavender system is the use of data from Meta's messaging platform, WhatsApp.

• Apple has pulled WhatsApp and Threads, two Meta-owned apps, from its app store in China under orders from Beijing's top tech regulator, reports Axios.

• Meanwhile, Elon Musk has spent weeks using his social network X to bash Bolsonaro's arch-enemy, the Supreme Court judge Alexandre de Moraes. De Moraes is responsible for several investigations into Bolsonaro that could land the ex-president in jail, including an alleged coup plot that preceded the right-wing insurrection in Brasília on 8 January 2023.

The opportunity: Amazon Web Services is a $5 billion business growing fast. It's accelerating," Amazon CEO Jeff Bezos said in a statement.

• The U.S. House of Representatives recently passed a $95 billion legislative package for Ukraine, Israel, and Taiwan.

• While much of that money ultimately goes to traditional defense contractors such as RTX Corporation (NYSE: RTX), formerly Raytheon, and General Dynamics Corp (NYSE: GD), who are both trading at record highs, funds will also funnel to Big Tech and the rising need for AI on the battlefield.

Zoom in: AI has become the new superweapon for global power as the G7 (Canada, France, Germany, Italy, Japan, the U.K., the U.S. and unofficially the E.U.) looks to control BRICS (Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Iran, and the U.A.E) access to the technology.

• The U.S. government has called on allies to force computer chip manufacturing equipment companies to stop maintaining some of the tools they have sold in China, part of Washington's efforts to undermine China's ability to produce its advanced computer chips.

Between the lines: U.S. venture capital investment in defense start-ups has doubled in four years.

• An example from one of the most well-known VC funds, Andreessen Horowitz, focuses on the promise of a model of warfare that uses technology to develop cheaper, simpler weapons in large quantities.

• Through their collective efforts, prominent venture capital firms, including Peter Thiel's Founders Fund, Andreessen Horowitz (a16z), and Lux Capital, are upstarts among today's rising stars in the defense sector, including Anduril, Hadrian, and Rebellion Defense. 

• Founders Fund-backed Palantir had beaten RTX to secure an $800 million army contract, and Elon Musk's VC-powered SpaceX had been gobbling up satellite sector funds.

Follow the money: Microsoft beat Wall Street estimates with $21.7 billion in quarterly revenue and 61 cents per share earnings.

• Meta Platforms Inc (NASDAQ: META) is trading near an all-time high.

• Alphabet Inc (NASDAQ: GOOG) is trading at historical levels.

• Amazon.com Inc (NASDAQ: AMZN) fell slightly below a record high, up more than 200 percent over the past five years.

• Palantir (NYSE: PLTR) is rising from a slight drop.

Global military spending reached a record high of $2.4 trillion in 2023, according to the Stockholm International Peace Research Institute (SIPRI), and it keeps moving up for 2024.

Inputs that matter: "The unprecedented rise in military spending is a direct response to the global deterioration in peace and security," Nan Tian, senior researcher in SIPRI's military expenditure and arms production program, said in a statement.

• Ukraine and Russia, actively at war, topped the list of countries that increased their military spending the most in 2023, by 51% and 24%, respectively.

• "The war between Russia and Ukraine also drove military spending elsewhere, prompting countries to think differently about their security outlook," explains Lorenzo Scarazzato, an army expenditure and arms production researcher at the SIPRI.

• Xiao Liang, a researcher in SIPRI's military expenditure and arms production program, told DW that "what might be surprising is how large the increases are in the rest of the world, especially in Latin America and Africa."

The opportunity: Polish President Andrzej Duda said Poland is "ready" to host nuclear weapons on its territory if NATO decides to reinforce its eastern flank.

• "If our allies decide to deploy nuclear weapons as part of nuclear sharing on our territory as well, to strengthen the security of NATO's eastern flank, we are ready for it," he added.

• More than two years of war in Ukraine has spurred NATO countries in eastern Europe—close to Russian territory—to invest heavily in their military strength, although they do not possess nuclear weapons. In the alliance, the U.S., the United Kingdom, and France have nuclear weapons, but several European bases host U.S. tactical nuclear weapons.

• Moscow, in response, warned it would take steps to "ensure its security" if Warsaw got the weapons.

Zoom in: North Korea on Monday test-fired suspected short-range ballistic missiles into the sea, the country's neighbors said, as speculation swirled that it could soon launch a banned satellite into orbit.

• The Joint Chiefs of Staff strongly condemned the launches, saying they were a "clear provocation" that threatened peace on the Korean Peninsula. It said it will maintain readiness to "overwhelmingly" respond to North Korean provocations in step with its military alliance with the United States.

• A Japanese government alert and its coast guard also said North Korea had fired what appeared to be a ballistic missile. The NHK broadcaster said the projectile appeared to have landed outside Japan's exclusive economic zone.

Between the lines: The conflict between China and Taiwan also increased military spending in 2023. China increased military expenditures by 6% from the previous year, allocating about $296 billion (€277.5 billion) to the military in 2023.

• Liang said China's military modernization had also prompted countries such as Japan, Taiwan, and India to increase their military spending. Japan and Taiwan raised their military spending by 11%, to $50.2 billion and $16.6 billion, respectively. 

• Iran's military budget is $10.3 billion in the Middle East, making it the region's fourth-largest spender.

Follow the money: RTX Corporation (NYSE: RTX), formerly Raytheon, is trading at a four-year high as NATO demand for its Patriot Missile System escalates.

• Likewise, defense company General Dynamics Corp (NYSE: GD) is trading at an all-time high.

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