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Federal AI Spending Set to Surge in 2026 Under New Administration Plan
Where does federal AI spending stand in 2026?
Image: Brookings
The Trump administration's AI Action Plan, launched in July 2025, aims for global AI dominance through deregulation and infrastructure investment. Federal AI spending is projected to reach $7.2 billion in 2026, a 966% increase from 2024, with the Department of Defense commanding 98.9% of the budget. This marks a significant shift in federal AI strategy and funding priorities.
- 01Federal AI spending is projected to increase to $7.2 billion in 2026, up from $675 million in 2024.
- 02The Department of Defense's share of potential AI contract value rose to $90.7 billion, representing 98.9% of federal AI spending.
- 03The number of federal agencies with AI contracts increased from 23 in 2024 to 28 in 2026.
- 04Only 0.68% of contracts were set aside for service-disabled veteran-owned small businesses, and just 0.05% for women-owned firms.
- 05The AI market is evolving, with larger firms like Booz Allen Hamilton and Palantir dominating, while smaller vendors still play a significant role.
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The Trump administration's AI Action Plan, introduced in July 2025, seeks to establish the U.S. as a leader in artificial intelligence through deregulation and infrastructure investments. This plan is expected to drive federal AI spending to $7.2 billion in 2026, marking a staggering 966% increase from $675 million in 2024. The Department of Defense continues to dominate this spending, accounting for 98.9% of the total budget with a projected potential contract value of $90.7 billion. The number of federal agencies involved in AI contracts has also risen, from 23 in 2024 to 28 in 2026. However, the representation of small businesses, particularly those owned by veterans and women, remains disproportionately low, with only 0.68% of contracts awarded to service-disabled veteran-owned businesses and 0.05% to women-owned firms. The market is maturing, evidenced by the entry of larger vendors and a shift towards longer-term contracts, although many smaller firms still contribute significantly to the contracting landscape. As AI technology progresses, the implications for national security and ethical considerations in its application will continue to be debated.
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The surge in federal AI spending is likely to drive innovation and job creation in the tech sector, particularly for larger firms, while raising concerns about the lack of opportunities for small and minority-owned businesses.
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