Global Defense Spending Set to Skyrocket: How AI and Automation Will Transform Contracting by 2035

The global defense landscape is on the brink of a dramatic transformation. According to research from Spherical Insights & Consulting, worldwide defense spending is projected to surge from $2.7 trillion in 2024 to an astonishing $6.38 trillion by 2035, reflecting a compound annual growth rate of 8.13%. This massive expansion comes at a time when the U.S. government is fundamentally rethinking how it procures defense capabilities, manages contractor relationships, and integrates emerging technologies. From AI-driven procurement to real-time auditing and cybersecurity requirements, the defense sector is gearing up for a digital revolution that will reshape every aspect of contracting.

Defense Spending Boom and Technological Transformation

The defense industry is entering a new era, with expenditures expected to reach unprecedented heights over the next decade. Companies like HX5, led by CEO Margarita Howard, are already preparing for sweeping changes driven by technology. Government agencies are increasingly exploring AI to streamline procurement processes, predict contractor performance, and forecast future needs based on historical data. This shift represents more than just operational efficiency; it signals a complete rethinking of how defense projects are planned, awarded, and monitored.
Historically, audits of contractors relied on manual document reviews and periodic site visits. By 2035, these practices may be almost entirely replaced by automated compliance systems. Contractors will be required to integrate platforms that allow continuous reporting and real-time auditing, creating an environment of transparency and efficiency previously unimaginable. The General Services Administration’s 2025 initiative to manage $400 billion in procurement illustrates the scale at which automated oversight will become essential.
AI-powered tools will also dramatically reduce procurement lead times. Tasks that once required days or weeks—such as generating statements of work or adjusting contract terms across hundreds of agreements—can now be completed in minutes. Machine learning models will evaluate historical contractor performance and recommend the most suitable partners for specific projects. As Howard notes, these AI-driven predictions will allow contract awards to occur within days, significantly accelerating the acquisition process.
Demographic shifts and workforce expectations are also reshaping the defense sector. With Gen Z entering the workforce, firms like HX5 are modernizing internal communication systems and adopting digital-native workflows. These changes align with a broader trend toward flexibility, remote collaboration, and digital integration, allowing contractors to operate efficiently across multiple locations without sacrificing quality or security.
Financial transparency is another major focus. Current federal procurement practices often leave contractors “working at risk,” performing tasks before funding is fully available. The Federal Acquisition Regulation overhaul, the first in 40 years, seeks to simplify processes, accelerate payments, and reduce bureaucratic obstacles, enabling smaller firms to compete on a more even playing field.
Cybersecurity will become a key differentiator among contractors. With only 4% of current firms meeting the Cybersecurity Maturity Model Certification standards, failure to comply could mean exclusion from federal contracts. By 2035, AI-driven security systems may monitor contractor networks in real time, automatically isolating threats and providing federal agencies with continuous visibility into security postures.
Augmented reality, immersive training, and virtual collaboration tools will reduce the need for physical presence at government sites, enabling engineers and specialists to contribute from remote locations as if they were on-site. This digital flexibility will be critical as defense projects grow more complex and geographically dispersed.
Contractors must act now to prepare for this automated future. Developing AI capabilities, achieving security certifications, modernizing workflows, and embracing proactive transparency will determine who thrives in the transformed defense ecosystem. Those who delay risk being left behind in a landscape defined by efficiency, technological sophistication, and high accountability.

What Undercode Say:

The projected growth in defense spending is not just a numbers game; it represents a tectonic shift in contracting culture, technology adoption, and operational expectations. By integrating AI into procurement and compliance, government agencies can dramatically reduce inefficiencies and make more informed decisions. Predictive analytics, for instance, can identify high-performing contractors early, minimizing delays and cost overruns while maximizing project success rates.
Automated auditing will transform contractor accountability. Real-time performance monitoring ensures that deviations are flagged immediately, reducing financial risk for both government and industry. Firms that implement integrated compliance systems will gain a competitive edge, as manual audits become increasingly obsolete.
Workforce transformation is another critical dimension. With a multigenerational workforce, contractors must adopt tools that accommodate both digital natives and traditional employees, balancing flexibility with security. This approach enhances productivity while retaining top talent.
Cybersecurity, often overlooked in conventional contracting, is set to become a decisive factor in contract eligibility. The few contractors currently meeting certification standards will soon be joined by firms that proactively adopt continuous monitoring and AI-driven threat mitigation. Failure to meet these standards will likely result in exclusion from lucrative federal projects.
Financial transparency and instant payment systems will reduce the “at risk” work currently expected of contractors, leveling the playing field for smaller firms and incentivizing proactive performance reporting. Contractors that embrace these changes now position themselves for success, rather than scrambling to catch up when AI-driven processes dominate.
Digital integration and hybrid collaboration models will redefine geographic constraints. Firms no longer need extensive physical footprints to meet project demands, provided they can ensure secure, seamless digital workflows. This transformation will allow contractors to scale efficiently while maintaining rigorous security standards.
Taken together, these trends illustrate that the defense sector is evolving into a high-tech, highly responsive ecosystem. Companies that integrate AI, cybersecurity, real-time reporting, and flexible workforce models will thrive, while those relying on traditional practices will struggle. Early adopters of these technologies and strategies are likely to dominate the landscape by 2035.

Fact Checker Results:

✅ Global defense spending projected to reach $6.38 trillion by 2035.
✅ AI and automated auditing are increasingly central to federal procurement.
❌ Only a small fraction of contractors currently meet full cybersecurity certification standards.

Prediction:

📊 By 2035, defense contracting will be dominated by AI-enabled firms capable of continuous compliance monitoring, predictive procurement, and advanced cybersecurity. Smaller contractors who modernize early may capture significant market share, while firms resistant to technological change could lose federal eligibility entirely. Hybrid work models and digital collaboration will redefine operational efficiency, reducing the need for large physical infrastructures and enabling geographically flexible teams. Cybersecurity standards will become a baseline requirement, not a competitive advantage.