One of the key themes from our 2026 Outlook – fragmentation – is already playing out in a big way. Three months into 2026, we already saw U.S. military action in Venezuela to remove its leader, bids to take over Greenland, and a massive escalation of conflict in Iran which is engulfing the Middle East – which is causing one of the most significant oil disruptions in history. Tariffs – a big driver of uncertainty last year – are also being reconfigured amid legal challenges, while fiscal support for strategic industries continue to ramp up as various economies seek dominance and resilience in key technologies and resources. Amid a myriad of geopolitical risks, how can investors position for the age of fragmentation?
One way to think about a game plan for investing in the age of fragmentation is “offense” and “defense”. Investors can play offense by owning the beneficiaries of fragmentation, while playing defense through hedging against the risks of fragmentation, all while owning a diversified core portfolio to weather through different macro and market environments.
On playing offense, we see multi-year investment opportunities in public and private equities, across developed and emerging markets in 1) military defense, 2) power and 3) supply chains. In response to evolving threats and the changing nature of warfare, governments are spending big on military and cybersecurity capabilities. But security goes beyond traditional defense. Energy and supply chain security have become global policy priorities. As booming power demand meets constrained supply, securing access to reliable energy has become a matter of national security. Governments and companies are putting capital to work, fueling domestic manufacturing, automation, and technological advancement, all aimed at securing strategic supply chain resilience.
It's evident that even if the war in Iran ends tomorrow, fragmentation is likely to continue characterizing the global economy and markets for years to come. The flow of capital to these opportunities is unlikely to reverse on short-term shifts such as conflict de-escalation or legislative obstacles, and may in fact present entry opportunities. As such, despite the rally in investments related to this theme, we still see room for further growth. The recent broad-based pullback in markets has moderated valuations and present attractive entry opportunities.
In this note, we cover the “offense” part of the playbook, with a focus on global opportunities across defense and national security which investors can dip into. In future notes, we plan to detail how investors can play “defense” through diversification (particularly through fixed income and alternatives) and highlight specific risks and opportunities in the Asia region.
Global armed conflict is at an 80-year high, and trade uncertainty is at some of its highest levels since COVID. Rising government economic intervention amid heightened geopolitical tensions are accelerating the shift away from globalization, creating tailwinds for country-specific strategic industries and sectors. There are some key drivers for our positive view on these strategic opportunities:
Defense has become a central political and economic objective for major powers. Amid a 14% increase in the U.S. Department of War’s 2026 defense budget, spending is set to surpass $1 trillion for the first time, driven mainly by mandatory spending and various priority projects. Nearly one-third is allocated to the Air Force and Space Force as the Trump Administration addresses challenges from China and Russia, revitalizes supply chains, and invests in drones, AI, and the “Golden Dome” project. Meanwhile, NATO’s pledge to allocate 5% of GDP marks a historic rearmament cycle. These policy shifts are not isolated events—they represent multi-year commitments that are reshaping the global defense landscape.
Europe has underinvested in defense (the cumulative gap between actual defense spending and the NATO target of 2% of GDP) by approximately €1.8 trillion between 1990 and 2021. Notably, around one-third of this shortfall is solely due to Germany, which implemented more significant reductions in defense spending following the conclusion of the Cold War than any other major Western country. European NATO members have attempted to close this gap, and are ramping up defense budgets, with domestic defense contractors likely to capitalize on most of the spending.
Security spending will likely extend beyond traditional military expenditures to include securing energy resources. Before the outbreak of the war in Ukraine, Russian energy accounted for 35% of Europe’s energy imports. Europe has increased its LNG regasification capacity by 75 billion cubic meters since, and investment in domestic energy production could continue, but energy independence is unlikely in the near term. The recent outbreak of conflict in the Middle East is further intensifying concerns over energy security. Europe is focused on diversifying its energy sources, and they are already making progress, with more initiatives in the coming years:
Closely related to energy security is AI. Driven by the growth of datacenters, global demand for power has increased rapidly over the last few years, especially in the U.S.. As booming demand pushes up against constrained supply, securing access to power has become a matter of national security, even though the U.S. is far more energy-independent than Europe. The Trump administration has been notably supportive of nuclear projects, even though they are years away from providing incremental power, while renewable energy (wind and solar) may lose subsidies under the current administration.
As such, natural gas has become an important policy initiative and trade chip. As the energy commodity with one of the greatest impacts on power generation, natural gas availability is key to the U.S. desire to lead in artificial intelligence, as hyperscalers continue to rely heavily on that resource for power. As the U.S. looks to reduce trade deficits, natural gas distribution has become integral to close that gap with partners. U.S. natural gas production continues to grow, and it has surpassed Qatar and Australia as the top LNG exporter in 2023. By 2030, the U.S. is projected to remain the top exporter.
The drive for supply chain independence in the U.S. is accelerating, anchored by a clear mandate from the administration. Their vision is somewhat realized via landmark legislation such as the CHIPS Act, Inflation Reduction Act, and Science Act which have driven new construction and reindustrialization. The momentum continues with executive orders, tariffs on China and other countries, and pro-manufacturing incentives through legislation like the One Big Beautiful Bill Act (OBBBA). Private sector investment is also expanding, with major initiatives like JPMorganChase’s $1.5 trillion Security and Resiliency Initiative (SRI). Collectively, these efforts are fueling a new wave of domestic manufacturing, automation, and technological advancement, all aimed at securing supply chain resilience and economic security.
Leadership in AI has also become a critical political and corporate goal across the globe – leading to broad support for technology. Both the U.S. and China are focused on building AI superiority through computing power, and they incentivizing national champions to build semiconductors locally through policy support. Industrial and technology companies are the clear winners amid broad-based policy support.
Security concerns are accelerating the need not just for AI, but sovereign AI. Beyond innovation, nations are reshoring digital infrastructure and prioritizing data sovereignty. The next step is securing the infrastructure and building resilience against both physical and digital challenges. The world is spending at a pace and level that it never has before to achieve that. Global cybersecurity spending is projected to reach $240 billion in 2026 and grow at an 11% compound annual growth rate to $320 billion by 2029. AI-driven cybersecurity spend is growing three to four times as fast.
Amid increased defense spending, more is being allocated to cybersecurity. The U.S. has called for a $1.5 trillion U.S. defense budget for 2027, marking a more than 50% increase from 2026. Spread across various departments and security agencies, cybersecurity, AI and other digital tools have been named as large and growing parts of the budget.
Heightened geopolitical tensions are accelerating government spending on defense, energy security, infrastructure resilience, and critical technology—creating durable demand for companies aligned with these priorities. Those firms stand to benefit from sustained fiscal support, long cycle contracts, and lighter regulatory friction. Investors can express this view through thematic managers or curated “national champions” equity baskets across defense, energy infrastructure, industrials, semiconductors, and critical materials. Investors can also access the broad and deep universe of private companies engaged in these themes through specialized managers.
Reach out to your J.P. Morgan team for advice how they can fit into your portfolio.
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