South Korea's Krafton and Hanwha Aerospace Forge Physical AI Alliance, Plan Defense JV

Krafton, the South Korean game developer, and Hanwha Aerospace have formalized a strategic alliance focused on Physical AI, signing a memorandum of understanding to pursue joint research and development and to establish a joint venture that would bring the technology to market.

Physical AI combines artificial intelligence with real-world environments to operate in industrial and defense contexts. The collaborators say the alliance will fuse Krafton’s AI research and software development capabilities with Hanwha’s strengths in defense and manufacturing infrastructure, using Krafton’s data operations and virtual-environment simulation to advance the training and validation of Physical AI systems.

Under the agreement, the two companies will undertake core R&D, validate practical demonstrations, and build the technical and operational frameworks needed to scale the technology. They also plan to establish a joint venture to speed the deployment of results to the field and to formalize ongoing collaboration over the longer term.

In addition, Krafton is set to invest in a fund managed by Hanwha Asset Management. The fund targets investments in AI, robotics and defense sectors, with a target size of about $1 billion, aimed at expanding the Physical AI ecosystem and strengthening the broader value chain through strategic investments and potential partnerships.

Krafton CEO Kim Chang-han said the collaboration would leverage Krafton’s AI and software-operating strengths with Hanwha’s on-site industrial capabilities to accelerate real-world tech development. He also stated that a future joint venture would commercialize the results and grow the venture into a global defense technology company similar to Anduril, as envisioned by the parties.

Hanwha Aerospace CEO Son Jae-il emphasized that AI is rapidly moving into defense via Physical AI and that the Krafton partnership would help set new standards in the field and in future defense applications.

Krafton has been expanding its long-term focus on AI and robotics. The company established Ludo Robotics, a robotics research entity in the United States, last year, and opened a Korea-based operation this February. The plan is to use Ludo Robotics’ research alongside the joint venture’s demonstrations and commercialization efforts to build stronger synergies across the two tracks.

For U.S. readers, the deal signals deeper convergence of AI, robotics and defense technologies beyond Korea, with potential implications for cross-border innovation, supply chains, and collaboration opportunities among American firms, suppliers and research institutions connected to Korea’s growing defense-tech ecosystem.