There has been an increase in investment in European AI startups following announcements from the European Commission aimed at enhancing Europe’s abilities to establish itself as an “AI continent.” However, ongoing global trade disruptions might jeopardize this advancement.
European AI investmen
VC funding increased by 55% in the first quarter of this year compared to the corresponding period last year, as revealed by new data from Dealroom analyzed by Balderton Capital and provided exclusively to Euronews Next.
The figures indicated that AI firms had secured $3.4 billion (approximately €3 billion), an increase from $2.2 billion (around €1.9 billion) in the first quarter of 2024. Additionally, it revealed that European technology stocks, apart from those related to AI, have dropped by 10 percent.
However, the data does not include the effects of tariffs imposed by US President Donald Trump, who hit China with a 125 per cent tariff on imports.
He imposed a 20 percent tariff rate on dutiable imports from Europe to the U.S., which was later temporarily reduced to 10 percent.
During the weekend, Trump stated that electronic devices like smartphones and computers would not be subject to the new U.S. tariffs.
Although the news buoyed European tech stocks early Monday, the way ahead remains unclear, particularly since Trump stated on Sunday that he plans to impose taxes on imported semiconductors this week. These components are fundamental to AI technology.
Don’t discount European AI just yet.
The unpredictable trading climate consistently leads investors to become more cautious with risks, according to Daria Gneusheva, who works as an investor at the German venture capital firm Project A.
A number of European firms depend on parts such as GPUs and semiconductors sourced from Asia, which could lead to increased costs and interruptions in their supply chain for hardware,” she explained to Euronews Next, further noting that accessing US markets will likely face greater obstacles and diminished appeal.
She mentioned that the trade war is also significantly encouraging European businesses and authorities to continue their investments in local production and research and development.
Recent tariff escalations between the US and China have also prompted companies to seek alternative markets, with Europe emerging as a strategic choice, she added.
“I wouldn’t rush yet to conclude that recent tariff development will make it better or worse for Europe, it can go both ways and it’s up to Europe to make an opportunity out of it”.
The development and launch of fundamental AI models have turned into a geopolitical competition, with countries asserting that this is crucial for their national security.
The U.S. and China are forging significantly ahead of Europe in developing foundational models.
as per a recent report from Stanford University.
Balderton pointed out that investments in European AI businesses were predominantly directed towards enterprises focusing on health, AI media, cybersecurity, and robotics.
The data indicated an increased interest in Europe’s AI entities, with $52 million (€45 million) invested in newly established startups focusing on these technologies. This includes companies like Lovable from Stockholm and Paid AI based in London.
The AI Action Plan
The European Union’s technology commissioner, Henna Virkkunen, was in focus last week.
The announced AI Continental Action Plan encompasses areas such as infrastructure, data accessibility, cloud services, skill development, and process simplification. Its objective is to drive transformation within Europe’s conventional sectors.
She emphasized that “strengthening capabilities in key areas” is crucial to ensure the bloc does not rely on other regions.
We’ve recognized AI as a sector where developing our capabilities is essential, alongside quantum and chip technology. These are crucial technologies for tomorrow.
This year, we’ve seen the emergence of two additional AI unicorns—companies valued at $1 billion (€1 billion) before going public. These include Sweden’s Neko Health and Ireland’s Tines, increasing the total count of European AI unicorns to 76.
What was the performance of European countries like?
Even though the UK is not part of the European Union’s strategy for AI advancement, it has attracted most of the AI investments in Europe. So far this year, British startups and scale-ups have secured approximately $4.2 billion (€3.6 billion), with about $1.6 billion (€1.4 billion) going specifically to AI firms.
In Germany, AI investments rose by 74 percent in this year’s first quarter compared to the previous year, amounting to $404 million (€355 million).
Nevertheless, France, despite advocating for investments in artificial intelligence and hosting firms like Mistral AI within its borders, experienced an 18 percent decline in the first quarter of this year relative to the previous one.
However, Balderton discovered that French Q1 investments experienced an overall decline of 26 percent, with AI investments faring comparatively well against general French technology sector performance.
The French government has been advocating for the advancement of artificial intelligence within the nation and organized the Paris AI Action Summit this year. Prior to the commencement of the summit, President Emmanuel Macron disclosed plans for an investment of €109 billion in AI over the coming years.
“France’s version of this would be similar to what the United States unveiled with Stargate,” Macron stated, referring to the U.S. initiative aimed at investing $500 billion (€438 billion) in developing new AI infrastructure over the coming four years.
“The drive for artificial intelligence in Europe continues to intensify. The AI Action Summit held in Paris has established ambitious goals for actions needed across the continent, and it’s impressive to witness how European startups and scale-ups are stepping up to meet these challenges,” stated James Wise, a partner at Balderton Capital.
In areas like healthcare, cybersecurity, and automation, European AI firms are developing much-needed solutions. The rapid flow of investment indicates that investors are enthusiastic about the technological promise of this region.
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