Regional Escalation Creates Defense Tech Tailwinds

The Turkish government is actively restructuring its industrial governance to center on artificial intelligence, establishing a new National Technology and Artificial Intelligence General Directorate. This body will centralize AI policy, create a sovereign national cloud, and develop a "Public Data Space" to keep sensitive data within Turkish borders for indigenous model development. This initiative is paired with a "dual-use" roadmap to adapt military AI innovations for civilian sectors like agriculture and health. Large Turkish defense firms are central to this AI push. Roketsan's CEO, Murat Ikinci, stated that AI is making missile technologies smarter and more precise in target identification. Similarly, ASELSAN has developed its AESA Aircraft Nose Radar using domestic resources, which leverages AI algorithms for automatic recognition and multi-target tracking. These efforts are part of a broader goal to achieve an 83% domestic content rate in the defense industry and reach $8 billion in exports by the end of 2026. The Turkish AI market is projected to reach $1.62 billion in 2024 and is expected to grow to $7.37 billion by 2030, with a compound annual growth rate of 28.72%. As of early 2026, there are 1,188 active AI startups in the country. However, a significant disparity exists in funding, with AI startups founded by the Turkish diaspora abroad securing median investments 24 times higher than those based domestically in 2025. Venture capital investment in defense tech startups globally reached a record $49.1 billion in 2025, a significant increase from $27.2 billion the previous year. This surge is driven by the battlefield validation of autonomous systems and AI in conflicts like the one in Ukraine. For 2026, investors are focused on a startup's ability to translate venture funding into large-scale manufacturing and production. The heightened geopolitical risk is reshaping private equity and VC strategy, moving beyond financial metrics to prioritize strategic intelligence. A survey of single-family offices revealed that 70% view trade wars as their primary threat, leading to a capital shift away from exposed emerging markets toward more stable economies. For emerging markets like Turkey, geopolitical shocks can cause stock valuations to drop by an average of 2.5 percentage points and increase sovereign risk premiums. The conflict's economic impact on Turkey is a significant concern for analysts. Surging energy costs could widen the current account deficit and fuel inflation, complicating the central bank's stabilization efforts. As an import-dependent nation that receives 16% of its annual gas needs from Iran, any disruption to energy supplies poses a direct threat to Turkey's manufacturing sector and fragile economic recovery.