5 Things to Know about the Pentagon-Anthropic Feud

A government-wide ban of Anthropic’s AI tech will reverberate across the entire artificial intelligence sector, affecting AI customers and investors. When you purchase through links on our site, we may earn an affiliate commission. Here’s how it works. Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.You are now subscribedYour newsletter sign-up was successfulWant to add more newsletters?Delivered dailyKiplinger TodayProfit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more delivered daily. 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To help you understand the trends surrounding AI and other new technologies and what we expect to happen in the future, our highly experienced Kiplinger Letter team will keep you abreast of the latest developments and forecasts. (Get a free issue of The Kiplinger Letter or subscribe.) You'll get all the latest news first by subscribing, but we will publish many (but not all) of the forecasts a few days afterward online. Here's the latest…The Pentagon banning Anthropic from its defense systems and networks is much more than a contract dispute. The government’s approach to artificial intelligence could affect the entire artificial intelligence industry.The feud is over Anthropic requesting restrictions on fully autonomous weapons and mass domestic surveillance, citing concerns about AI’s unreliability and citizens’ fundamental civil rights. The Pentagon says a private company dictating the terms of use for military AI is untenable, and that it follows the law.Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special IssuesProfit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.Profit and prosper with the best of expert advice - straight to your e-mail.Here are five takeaways from the ongoing dispute.In this view, the tech is akin to a nuclear bomb, not a piece of software. Washington sees AI as crucial to military power and is in an arms race with China. That has huge implications for how the federal government may treat private companies developing AI in the future.Generative AI is rapidly being integrated into mission planning and combat, including now in Iran, for intelligence, target assessments, wargaming and more. The current approach is to ramp up AI adoption across the military and have unfettered access to the very best tools available.The AI company is challenging the Pentagon’s labeling it a supply chain risk, a designation used for suppliers (mostly foreign adversaries) that are a national security risk. Anthropic also opposes the Pentagon calling for a wider ban in the private sector, which is beyond the scope of a supply chain risk designation.For now, the government says federal agencies have six months to stop using Anthropic, while the company in a legal filing has already pointed to “irreparable harm” and huge losses from being blacklisted. Other cutting-edge AI choices are available to the government, including from OpenAI, Google and Meta. Even if the government loses in court, the pressure could coerce other AI companies to avoid similar confrontations. Military leaders will keep pushing AI firms to acquiesce, aiming to remove any usage restrictions baked into their AI model or in contracts.The harsh tactics have irked Silicon Valley and beyond, casting a shadow over AI development. And tensions over AI guardrails aren’t over. Consider that OpenAI, which signed a new Pentagon contract after Anthropic was officially banned, continues to say it has red lines and will monitor military use.Look for louder calls for Congress to step in and set rules for military AI.The Trump administration has also threatened to force Anthropic to build its desired AI tools by invoking the Defense Production Act, a Korean War-era law meant for steel mills and tank factories. Doing so would be a major escalation and would invite swift legal challenges.It’s not clear how the legal case would play out. But note that the Biden administration also invoked the DPA for rigorous information gathering of leading-edge AI models. Though less coercive than forcing certain software to be built, it still sparked criticism from the industry.Both parties see AI as too important to be left alone, though they differ on the risks, appropriate oversight and tactics.Banning certain AI companies, asserting control over AI or potential federal regulations could shake up the market. Anthropic reportedly has reached a rate of $20 billion in yearly sales and has a $380 billion valuation, and is eyeing an initial public offering this year. It continues to gain users, but some customers may be wary and opt for competitors, hoping to avoid confrontation with the Trump administration.Meanwhile, Anthropic customers who have military contracts are scrambling to figure out if the ban means they have to ditch Anthropic. Federal contracts for AI will amount to tens of billions of dollars in coming years. Being excluded would be a huge loss for a large tech firm or a start-up.This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter.Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.John Miley is a Senior Associate Editor at The Kiplinger Letter. He mainly covers AI, technology, telecom and education, but will jump on other business topics as needed. In his role, he provides timely forecasts about emerging technologies, business trends and government regulations. He also edits stories for the weekly publication and has written and edited email newsletters.He holds a BA from Bates College and a master’s degree in magazine journalism from Northwestern University, where he specialized in business reporting. An avid runner and a former decathlete, he has written about fitness and competed in triathlons.