By Joshua Iseler, Market Intelligence Analyst

For IT vendors and solutions providers, recent Department of Defense (DoD) AI initiatives are ushering in some new ways to broaden their offerings.

In July 2025, the DoD’s Chief Digital and AI Office awarded $200 million in contracts to xAI, OpenAI, Google and Anthropic. These awards align with the national AI strategy for faster deployment, competition with China and streamlined regulatory controls.

The announcement comes shortly after the White House’s updated Office of Management and Budget (OMB) memos for federal AI use and procurement: 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.

These OMB memos, issued in April, introduced changes from previous guidance, ranging from narrowing the definition of covered AI systems, to softening risk management obligations, to encouraging investments in “American-made AI.”

AI is part of national security

This White House and OMB guidance extends the government’s continuing commercial-first acquisition approach to AI technologies.

Systems integrators 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 is providing access to the technology across the entire federal ecosystem.

What does this mean for the traditional prime contractor/subcontractor relationship? Longstanding defense primes, such as Lockheed Martin and Raytheon, will increasingly partner with, or source from, AI-native companies. This may lead to new alliances or acquisitions.

Ecosystems built around these large models, such as data-labeling, secure deployment and government compliance, could result in 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.

FY2026 defense budget backs AI

FY2025 DoD AI funding was $1.8 to $2.5 billion, which was flat from the FY2024 funding of AI, largely because of budget caps. The FY2026 defense blueprint supports AI modernization, machine learning and digital infrastructure. As of today, the DoD has requested nearly $12 billion toward AI for FY2026.

AI has been incorporated in the FY2026 defense budget as a part of its “autonomy capability” budget request. According to a senior defense official in a June 26 background briefing, the FY2026 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
• $210 million for autonomous ground vehicles
• $1.7 billion for on-the-water autonomous vehicles
• $7.34 million for autonomous vehicles with underwater capabilities
• $1.2 billion for enabling capabilities, such as autonomy software, to facilitate work across all platforms

The Department of the Navy requested $5.3 billion across all its systems, which represents $2.2 billion more than FY2025. Its FY2026 request includes:

• Three MQ25 refueling drones
• Additional unmanned air vehicles
• Unmanned undersea vehicles
• Surface initiatives that include procuring medium unmanned surface vessels (MUSV)

Security remains critical

Helping ensure the reliability and trustworthiness of AI systems in government — especially where autonomous decision making and sensitive environments are concerned — should be among the top concerns for any company offering AI solutions to the military. The potential to exploit AI vulnerabilities for malicious activities is great, and it demands increased cybersecurity measures and countermeasures.

Regardless, 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. AI solutions providers must be ready to create alliances that they can promote as helping accomplish that purpose.

This article is adapted from a commentary originally published in Washington Technology. For the complete original commentary, click here.

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