Krafton, Inc. has entered a strategic alliance with Hanwha Aerospace focused on physical AI, announced on March 13, 2026. It is a stunning pivot for a company best known for creating PUBG, one of the world's most successful video games.
The companies signed a memorandum of understanding to initiate long-term co-development in physical AI technology and establish a joint venture with Hanwha Group. Krafton will invest in Hanwha Asset Management's global AI, robotics, and defence fund targeting USD 1 billion.
The partnership combines two very different industries. The partnership combines KRAFTON's advanced AI research and software development capabilities with Hanwha Group's industrial infrastructure in defence and manufacturing. KRAFTON's accumulated experience in operating large-scale game data and physics-based virtual worlds serve as core assets in training and verifying physical AI software.
What is physical AI? Physical AI, as defined by Nvidia, lets autonomous systems like cameras, robots, and self-driving cars perceive, understand, reason, and perform or orchestrate complex actions in the physical world. For defence applications, this means autonomous weapons systems, unmanned ground vehicles, and AI-assisted military command and control.
Krafton has been actively expanding in this field, establishing a Physical AI Team under its AI division last year and founding Ludo Robotics, a robotics research subsidiary in the United States. The company made a strategic commitment to become an AI-focused business in 2025, investing heavily in computing infrastructure and talent.
Hanwha Aerospace, the defence and aerospace arm of Hanwha Group, develops military systems including aircraft engines, space technology and precision-guided weapons. The partnership addresses a growing recognition in defence industries that AI integration is becoming essential to military capability.
The alliance will focus on three areas: joint research and development of core physical AI technologies, validation of real-world deployment scenarios and applications, and the establishment of technical and operational systems. Long-term plans include expanding cooperation to the space and aviation sectors while jointly discovering promising companies.
Krafton CEO Kim Chang-han has ambitious expectations for the venture. KRAFTON CEO CH Kim said KRAFTON will accelerate the development of physical innovation by combining the company's AI technology and software expertise with Hanwha's industrial strengths, and expressed an expectation that the JV will emerge as a global defence technology company like Anduril. Anduril Industries is a US defence contractor specialising in autonomous weapons systems.
The announcement arrived amid significant reputational turbulence for Krafton. Krafton announced its partnership with Hanwha on March 13, just days before losing its high-profile legal dispute with the co-founders of Subnautica developer Unknown Worlds. A Delaware court ruled that Krafton had breached contractual obligations when attempting to avoid a USD 250 million earnout payment, ordering the company to reinstate executives it had wrongfully terminated.
Whether this defence pivot represents a genuine strategic transformation or a public relations reset remains unclear. What is certain is that Krafton is betting its future on a market far removed from gaming: autonomous systems, weapons technology, and the increasingly blurred line between civilian and military AI applications.