Defense and aerospace investing has entered a new era. Military power no longer flows solely from carriers, tanks, and bombers—it depends equally on the semiconductors, data centers, and cybersecurity systems that enable modern warfare. Nations are racing to build the computational infrastructure required for AI-driven operations, autonomous weapons, and real-time intelligence. For financial advisors evaluating how clients gain exposure to defense spending, understanding the technological transformation reshaping the sector has become essential.
Frank Holmes, CEO and CIO of U.S. Global Investors, has built the U.S. Global Technology and Aerospace & Defense ETF (ticker: WAR) around capturing both dimensions of modern military capability.
“The exposure is tilted far beyond just tanks, airplanes, and bombers,” Holmes tells The Wealth Advisor’s Scott Martin. “It captures the broader forces behind the data center boom, modern armaments, and rising defense budgets, many of which rely on NVIDIA-type chips.”
One year into managing WAR, Holmes is executing on a thesis built for contemporary warfare. The fund’s 29.73% return since inception, as of December 31, 2025, reflects an understanding that military power now hinges as much on computational strength and cyber resilience as on traditional hardware.
Semiconductors Power the New Battlefield
The demands placed on today’s fighter pilots illustrate how quickly the military has evolved, Holmes points out. The technology packed into modern aircraft has advanced to the point where pilots train not only to fly but to interpret enormous volumes of data in real time.
“Pilot helmets became so advanced that the technology initially outpaced what the human brain could process, requiring new AI-assisted training to prevent what they call cognitive impairment,” he says. “These helmets, costing around half a million dollars each, deliver an overwhelming amount of real-time data, far beyond just the horizon, clouds, or radar.”
Pilots now navigate 360-degree views, multiple information feeds, and supersonic launches from aircraft carriers—all supported by semiconductors that far exceed the capabilities of systems from even a decade ago. The technological leap has created durable, multicycle demand for chips throughout the defense ecosystem.
WAR’s allocation reflects the semiconductor-driven evolution of military hardware. As of the most recent quarter end, the fund held approximately 30% each in semiconductors and in aerospace and defense, roughly 15% apiece in cybersecurity and in information technology, and about 5% in data centers. Its 29 securities aim to balance large-cap stability with opportunities in midcap innovators.
Holmes emphasizes the invisible infrastructure enabling visible military innovation. The autonomous systems and AI-driven platforms now entering service require computational power that didn’t exist a generation ago—creating demand that extends far beyond the defense contractors traditionally associated with military spending.
“As we move into the next phase, robotics will play a major role, from robotic dogs that detect bombs or deliver supplies to soldiers, all of which depend on robust data centers and advanced semiconductors that are becoming central to modern defense systems worldwide,” he explains.
Defense Budgets Shift Toward Technology
Defense expenditures worldwide have climbed for a decade straight, reaching $2.7 trillion in 2024—the steepest annual rise since the Cold War ended. A growing share of that spending goes toward the technology required for modern operations. The surge in European spending is notable: countries that were once under scrutiny now meet or exceed NATO benchmarks, with Poland over 4% of GDP. Much of that capital is flowing not just into equipment but into the digital and physical infrastructure that powers next-generation systems.
WAR’s portfolio mirrors the global modernization push. As of the most recent quarter end, roughly two-thirds of its holdings were based in the United States, with additional exposure in Australia, Britain, Japan, Israel, France, Germany, Singapore, and Ireland, capturing modernization efforts across developed markets.
Border security offers another example of how defense priorities have broadened. Holmes points to Poland’s heavy spending on border infrastructure in response to migration pressures, which he says has strengthened public safety while supporting economic activity.
“What we’re seeing is that migration and security risks are far more complex than many people once believed, with criminal networks operating across regions and governments responding by refocusing on border control and internal security, moving away from purely political debates and toward concrete defense priorities,” observes Holmes.
He anticipates similar dynamics in the United States this year, as he believes that increased national security and defense spending may drive job creation and could potentially help reverse recent employment losses.
Energy Infrastructure Enables Defense Technology
The Western Hemisphere is playing a larger role in U.S. security planning, particularly around Venezuela and the Caribbean. Holmes notes a growing military presence near Trinidad and Puerto Rico, alongside intensified efforts to disrupt illicit oil flows.
“One consequence is the strain on Cuba, which relies heavily on Venezuelan oil. When those shipments are disrupted, the country faces widespread power outages,” Holmes says.
The developments underscore the role of electricity and energy infrastructure in sustaining modern defense capabilities. AI, advanced weapons systems, and cyber operations all depend on reliable power and high-performance computing environments.
Holmes draws a contrast between China’s rapid infrastructure expansion—including significant hydropower projects and roughly 30 nuclear reactors—and the slower U.S. build-out. While the United States remains ahead in high-performance computing data centers, China’s construction speed is accelerating. The arms race increasingly includes data center capacity packed with GPUs and designed to support autonomous systems, cybersecurity, and real-time intelligence. Defense capability now depends as much on electrical capacity and computing infrastructure as on weapons platforms—a shift that redefines which companies are critical to national security.
Consumer Confidence Reflects Security Perceptions
Travel demand offers an unexpected window into how consumers perceive security. Holmes sees confidence reflected not in surveys but in booking patterns and airport traffic.
“There’s no hesitation about traveling for conferences—my trip to Florida is happening, despite flight and hotel costs being much higher than a year ago or even five years ago,” he notes. “That confidence reflects broader consumer sentiment: people feel safe traveling, which points to continued global spending.”
WAR seeks to capture environments where a sense of security supports economic stability. Holmes also remains optimistic about the labor market’s ability to adapt to AI-driven disruption. Drawing from his experience managing the U.S. Global JETS ETF and the U.S. Global Sea to Sky Cargo ETF, he notes both funds rebounded quickly after downturns. “The airlines are packed,” he says—another signal that consumer and business confidence remains intact.
In his view, rising gold prices—fueled by elevated global debt levels as governments shift spending toward national security—signal broad structural changes. Meanwhile, strong shipping and air travel activity point to durable global demand. Holmes believes WAR is well positioned to capture the industrial and technological transitions reshaping defense, despite bearish narratives around data centers and digital assets.
Cybersecurity Becomes Mission Critical
Cybersecurity lies at the center of modern defense readiness. Holmes sees the threat landscape intensifying as adversaries target critical infrastructure with increasing sophistication.
“We’re in a new era where AI is critical to detecting and defending against these threats,” he says. “Unlike closed systems in countries such as China, Russia, Iran, and North Korea, Western economies operate open networks, making cybersecurity even more vital.”
Where many defense-focused ETFs emphasize traditional hardware, WAR seeks exposure to the software and AI layers of defense as well. Cybersecurity companies in the portfolio often use subscription-driven, software-as-a-service models that generate recurring revenue—a potential advantage during economic uncertainty.
The fund blends cybersecurity specialists with traditional contractors and chip manufacturers. Names such as OneSpan, Kyndryl Holdings, and Cohort PLC have sat alongside leaders like Micron Technology, AeroVironment, NVIDIA, and RTX Corp. The mix reflects Holmes’s view that modern defense depends on software as much as steel.
Active Management for Dynamic Threats
WAR uses what U.S. Global calls a “quantamental approach,” blending factor-driven quantitative analysis with bottom-up fundamental research. Factors such as profitability, volatility, and liquidity guide security selection across technology, aerospace, defense, and data-infrastructure companies.
Allocations shift as macroeconomic, geopolitical, and regulatory conditions evolve. The strategy concentrates more than 25% of assets in both the aerospace and defense industry and the semiconductor industry, making it nondiversified and subject to sector-specific risks. The concentration reflects Holmes’s conviction that technological capability will continue driving defense spending—a bet on structural change rather than diversification.
WAR carried a 0.60% expense ratio as of December 2025. From its December 30, 2024, inception through December 31, 2025, WAR returned 29.73% at NAV and 29.56% at market value. Low turnover and strong performance suggest the strategy’s targeting companies positioned at the intersection of defense and technology has gained traction quickly.
Silicon Warfare Requires New Thinking
Holmes argues that defense investors are living through a structural transformation, not a marginal upgrade cycle. He points to the aircraft displayed during the interview—semi-autonomous systems, drones, and next-generation jets that blur the line between manned and unmanned platforms—as evidence of an industrial revolution rather than incremental change.
“Look at these jets behind me. It’s incredible how many chips are now involved,” Holmes says.
Traditional defense frameworks focused on prime contractors capture only part of the picture. Modern capability hinges on semiconductors, cybersecurity, AI, and data centers. WAR seeks to provide capital appreciation by investing in companies that may benefit from developing technologies and services tied to national defense—including aerospace, physical security, and cyber defense.
Political support for defense spending remains broad, especially across NATO nations where investment has climbed quickly. Combined with steady consumer confidence, the environment supports continued modernization efforts.
Holmes emphasizes how the convergence of technology and traditional defense creates opportunity.
“Many ETFs in this space focus narrowly on traditional hardware like tanks and bombers, but WAR is built around the AI-driven components of modern defense,” he notes. “That includes cybersecurity, which has become essential as state-backed actors—particularly China’s [Ministry of State Security]—continue to target U.S. telecom networks, power infrastructure, and government agencies through cyberattacks and disinformation campaigns.”
Research projects the AI in defense market to grow at a 30.22% compound annual rate—from $4.96 billion in 2024 to $18.56 billion by 2029. For advisors, the shift represents a significant evolution in how nations maintain security—and how investors may approach the sector as it enters a new era.
To learn more about the U.S. Global Technology and Aerospace & Defense ETF (NYSE: WAR), please visit www.waretf.com. All applicable information, risks, etc. can be found on the website. Distributed by Quasar Distributors, LLC. U.S. Global Investors is the investment advisor to WAR. This article should not be considered investment advice.
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