This Week in Dual-Use
NEWS
Chinese AI approaches performance of American AI
The hot topic in Silicon Valley at the moment is Kimi K3, the new Chinese open-source model from the lab Moonshot AI, which apparently performed close to the top American models. It isn’t quite at the frontier, but it’s pretty close - perhaps only a few months behind.
After Chat GPT broke into public consciousness in late 2022, China has been playing catch-up in AI. It is almost there now.
It has achieved this largely by distilling American models and creating its own versions of them. Kimi K3 seems to be no different, apparently once calling itself “Claude, an AI assistant made by Anthropic”.
If China wants to overtake the US in model performance it will have to do more than distil American AI. Perhaps that is not the goal, and AI parity will suffice. Whatever the outcome, the open-source nature of Kimi K3 makes it an appealing option for the cost-conscious enterprise. For CFOs and finance directors, it could become increasingly difficult to justify paying frontier prices for frontier models.
I wanted to compare the China vs USA in AI to USSR vs USA in the space race, but that is a weak analogy. The Japan vs USA semiconductor war of the 1980s is probably a better fit.
America invented the technology; Japan absorbed it, refined it, and then competed on cost and manufacturing quality until it took half the global DRAM market. The US response was export controls, trade agreements, and industrial policy (Sematech).
The kicker is that Japan never actually overtook the US at the frontier, but it didn't need to. It commoditised the middle of the market, which is arguably exactly what Kimi K3 and DeepSeek are doing.
Meanwhile OpenAI said that GPT 5.6 Sol and an unreleased model hacked into a software company’s system without being told to do so. Apparently the models escaped the testing environment, went online and stole login credentials for Hugging Face, an AI platform. Yes, you read that correctly.
Hugging Face said that it used a Chinese model to defend itself because the guardrails on American models made them useless.
We live in interesting times.
US and Ukraine agree on drone export
The US and Ukraine have tentatively signed a letter of intent for Ukraine to export its drones to the US for military testing purposes. The agreement creates a pathway for Ukrainian land, air and maritime drones to be exported to the US for military testing and evaluation, feeding into future Pentagon procurement requirements, with the door open to joint manufacturing of Ukrainian-designed combat drones on American soil.
The direction of this transaction deserves a moment's reflection. The country that entered this war dependent on American Javelins is now supplying drones to the American military.
The hardware is already moving: earlier this month, Ukraine shipped 2,000 F10 strike drones to the US under the Pentagon's Drone Dominance programme, where the F10 beat most of the field at Fort Benning.
A US firm, ReconCraft, is separately preparing to produce Magura-style USVs in Oregon and South Carolina (with the permission on UFORCE).
Regular readers will know my thesis that Ukraine is likely to become the fulcrum of the European defence industry over the next decade. This agreement strengthens it, but it also extends it.
The US deal sits alongside Ukraine's Drone Deal agreements with European countries, its ten-year arrangements in the Gulf, and the export mechanism it recently approved. What began as a European story could become a global one.
NATO builds a constellation out of other people’s satellites
Eight NATO allies announced HALO at the Ankara summit: Hybrid Alliance Layered Operations in Space, a project to stitch nationally owned military satellites into a single networked mega-constellation. The aim is high-speed communications, intelligence and missile tracking.
The announcement fits the pattern of the Ankara summit, where Europe and Canada assumed responsibility for capabilities America used to provide.
Interoperability between eight nations' sovereign satellites is precisely the kind of integration challenge NATO has historically been slow at. But the direction is right and the alternative, eight sub-scale national fleets, is worse.
Absent are the US, France and the UK, the alliance's three biggest military space powers. They have genuinely capable sovereign military space programmes and therefore the least to gain and the most classified equity to protect. The eight countries have (rightly) concluded that pooling is their only route to scale.
FUNDRAISING
DEFENCE
Senra Systems, an American developer of wire harnesses for defence, raised a $65M Series B co-led by Lowercarbon Capital and Interlagos.
Raghu Vamsi Aerospace Group, an Indian manufacturer of aerospace components, mission systems, and uncrewed vehicles, raised a $40M round co-led by Norwest and Skegen Asset Management.
Greenjets, a British developer of electric propulsion technology for drones, raised a £30M Series A led by Blossom Capital.
ReElement Technologies, an American company refining rare earths and critical minerals, received $25M of investment from the Department of War.
Intalus, an American developer of metal-ceramic integration technology for defence, raised a $20M round co-led by Origin Ventures and Scout Ventures.
SPACE
TerraFirma, an American company aiming to build critical infrastructure on Earth, Mars, and the Moon, raised a $115M round led bye Kleiner Perkins.
DeltaVision, a German builder of valves, pressure regulators, and electric pumps for spacecraft, raised an €10M round co-led by KT Ventures and Valemount Capital.
QUANTUM, CYBER & AI
Twenty, an American developer of AI systems that support offensive cyber operations, raised a $30M round at a $1.2B valuation. The deal was led by Khosla Ventures.