For a lot of the final three many years, Europe has performed a back-footed function within the digital financial system: influential in regulation, sturdy in analysis, however hardly ever the place the place globally dominant know-how corporations are constructed. The web period created extraordinary wealth elsewhere. The identical holds true for the current AI wave, primarily pushed by on-line chatbots created by the data-rich Large Tech giants which have grown up within the web period. Europe, regardless of its expertise and monetary power, turned the least aggressive of the foremost digital economies—and the ensuing hole in worth creation has grown into the trillions.
That story is well-known. What’s much less appreciated is {that a} second innovation wave within the rising AI period might provide Europe one thing fairly uncommon in know-how improvement: a historic second probability.
Synthetic intelligence in the present day is basically about larger basis fashions primarily educated on web information; bigger information facilities; and ever extra capital-intensive computational scale. That is the place the overwhelming majority of funding capital at the moment goes. No person can know in the present day if these big bets, usually framed as a race to “artificial general intelligence,” or AGI, will in the long run repay for the latecomers to the Nvidia, OpenAI, and Anthropic gamble.
However one factor is now changing into clear: The subsequent spherical of AI innovation is not going to be gained solely in chat home windows. It is going to be gained the place intelligence meets matter: in robotics and manufacturing, in chemistry and supplies, in bio-pharma and healthcare, in power programs, logistics networks, and industrial operations. In different phrases: within the bodily and scientific domains.
And that is exactly the place Europe’s underlying benefits are hiding in plain sight. Three key elements might show extra important going ahead than they did within the earlier internet-dominated AI period: (1) scientific expertise; (2) industrial power and know-how; and (3) ecosystems throughout a number of sectors. Curiously these are all areas the place Europe’s strengths lie. AI innovation and adoption going ahead will arguably be outlined by the supply of industry-specific information, know-how, and ecosystems, in addition to scientific expertise spanning each AI and area experience, greater than from pure computation and web dominance.
A have a look at the basics could also be fairly stunning for European in addition to American traders. The EU accounts 22% of world AI analysis citations, vs 17% for U.S. researchers. And a couple of.2 million STEM graduates get their diplomas from European universities every year, in comparison with 1.4 million from U.S. ones. Europe employs 2.15 million researchers in full-time employment, and spent €403 billion on R&D in 2024. And in contrast to the U.S. company neighborhood, which is powerful primarily in software program, Europe’s industrial base is gigantic and automation-ready: EU manufacturing generates €2.5 trillion in worth added and operates at 219 industrial robots per 10,000 staff—precisely the substrate the place AI’s subsequent productiveness wave will land.
Lastly, Europe’s underestimated benefit is that it already runs EU-funded, cross-border ecosystems that sew collectively universities, {industry}, startups, and the general public sector—not as a slogan, however as infrastructure. By itself, the EU funding program Horizon Europe places €93.5–€95.5 billion (2021–2027) into collaborative analysis and innovation throughout fields from well being and power to mobility and manufacturing.
Washington has clearly recognized these European strengths as key within the coming AI wave: It’s no coincidence that the U.S. has additionally lately launched the Genesis Challenge, aimed toward strengthening the nation in precisely these industrial, manufacturing, and scientific areas. China, in the meantime, is accelerating on a parallel observe. Slightly than merely emulating American basis fashions, Beijing is investing throughout the total stack—from chips to software program to cyber-physical deployment. In robotics, autonomous programs, and AI-enhanced manufacturing, China is constructing spectacular capabilities rooted in scale and pace. Supersmart factories and data-rich manufacturing ecosystems are turning industrial output right into a strategic information benefit.
The result’s a quickly rising Chinese language mannequin of AI—much less centered on chatbots and extra on embedding intelligence straight into the equipment of the true financial system. On this sense, China may be a good larger competitor for a European AI innovation trajectory in direction of infusing AI into the bodily world. Therefore, the previous continent is healthier positioned to just accept the problem from far-east and west as one would possibly suppose.
Scientific expertise, industrial power, and sectorial breadth
The previous continent stays one of many world’s strongest areas in science, engineering, and industrial depth. Its universities and analysis establishments persistently produce frontier information. For instance, the European Union now accounts for 21% of world generative AI analysis publications, putting it firmly on this planet’s high tier of AI science.
Europe additionally sits on probably the most precious and underused assets of the AI age: industrial know-how, ecosystems, and information at scale. Corporations like Siemens and Bosch, Airbus and Dassault Systèmes, Stellantis and Scania, BASF and Bayer, ASML and SAP, and Roche and Novo Nordisk function among the world’s most superior industrial programs—factories, provide chains, power grids, laboratories, and engineering workflows that generate huge streams of high-quality real-world information.
But Europe has barely begun to show this useful resource into AI-native industrial platforms and new international champions. Within the nineteenth century, the Industrial Revolution was powered by harnessing bodily equipment. The approaching technological wave—AI-driven science and {industry}—will likely be powered by harnessing industrial intelligence. Europe has the machines, the information, the ecosystems, and the information.
The depth in addition to breadth of Europe’s industrial sectors present not solely information and know-how, but in addition the required market situations for innovation to thrive. Each startup wants above all clients. Buyers’ cash is sweet, however clients’ is healthier. And each investor, in addition to each founder, wants exit paths.
And right here lies one other key European benefit, which is commonly ignored. For years, the success of tech entrepreneurs and traders has been outlined both as an IPO or as an acquisition by one of many handful of Large Tech corporations. That is about to alter basically, within the period of bodily AI, to the advantage of founders and their traders.
The subsequent-generation AI entrepreneurs is not going to should hope for a fortunate punch with the deep-pocketed “Magnificent 7” Large Tech abroad, however will as an alternative be capable of constitution new exit paths with lots of of commercial gamers. With European industrial Goliaths as potential acquirers in addition to clients of revolutionary AI Davids, Europe can create a win-win setting at scale: Entrepreneurs and traders have a lot extra causes to begin and fund an organization, whereas present industrial gamers have entry to the most recent improvements from the labs.
In fact, a few of in the present day’s industrial Goliaths could also be disrupted by the AI newcomers, whereas others will solely strengthen by improvements. In each circumstances, worth will likely be created and captured both by a cohort of latest gamers—the latter being the longer term AI-native international {industry} leaders—or the incumbents infused with startup AI.
Financing the commercialization of improvements
With all its scientific strengths, Europe’s central problem will not be invention however company-building at scale. In 2024, U.S. startups captured roughly 74% of world enterprise funding of in the present day’s AI, whereas Europe accounted for about 12%—a telling measure of the place ventures of in the present day’s AI wave most frequently develop into world-class champions.
Europe’s AI ecosystem is continuously undervalued as a result of the area is perceived as weak within the digital house. The brand new bodily AI-driven market presents an enormous alternative for a comeback. Given the area’s place of power for the brand new AI wave, the following wave of European AI corporations have the renewed alternative to seize over 25% of the worldwide next-generation AI market, according to its analysis and industrial contributions—if the area manages a step-change in turning breakthroughs into venture-scale companies.
The bottleneck is neither expertise nor ecosystems. It’s the commercialization capability of latest concepts at pace and scale: connecting labs throughout borders, constructing stronger pathways from discovery to firm formation, and linking European deep-tech founders to international capital, clients, expertise, and distribution networks.
The U.S. fosters about 4 instances as many AI unicorns as Europe. And one principal cause has been broadly mentioned: The funding hole is measurable and large. In 2023, AI enterprise funding reached roughly $68 billion in the US, in contrast with solely $8 billion within the European Union. Analysts estimate the broader EU–U.S. funding shortfall in ICT and cloud computing at $1.36 trillion, underscoring how a lot industrial digital infrastructure Europe nonetheless must construct.
Encouragingly, policymakers are starting to reply with historic ambition. Earlier this 12 months, the European Fee launched its €200 billion InvestAI initiative, together with €20 billion earmarked for AI gigafactories.For the primary time, Europe is signaling that it intends to match scientific excellence with industrial-scale capital.
The timing issues. AI adoption is accelerating quickly throughout the true financial system. OECD information present that the share of corporations utilizing AI has risen sharply—from 8.7% in 2023 to over 20% in 2025. The AI transformation is not confined to Silicon Valley labs. It’s spreading throughout factories, hospitals, laboratories, logistics networks, and power programs—exactly the sectors the place Europe retains deep structural strengths.
For enterprise capital, personal fairness, and institutional traders alike, this second AI probability can be probably the most compelling funding alternatives of the approaching decade. Backing the following era of research-driven AI corporations will not be solely about constructing the longer term industries of the bodily world—it could generate outsized returns because the continent converts its expertise and industrial benefits into international market management.
Importantly, Europe’s alternative is to not emulate Silicon Valley mannequin for mannequin. It’s to innovate in another way: to construct AI-native corporations rooted in scientific depth, industrial integration, and accountable governance. Furthermore, Europe’s range, sturdy establishments, and dedication to rule of regulation can develop into aggressive options in a world more and more formed by belief, safety, and sophisticated societal deployment.
An innovator’s dilemma at scale
As the brand new AI wave unfolds, paradoxically Europe’s relative place as a industrial first-wave AI laggard may very well show to be a power.
Not like incumbent ecosystems, which have already invested, or maybe sunk, lots of of billions into in the present day’s foundation-model architectures, Europe’s present era of AI researchers and entrepreneurs can begin recent. Complete nations will be disrupted as properly. Political scientist Jeffrey Ding has lately argued that main technological transitions have repeatedly reshaped international energy—from Britain within the first Industrial Revolution, to Germany’s rise within the age of chemical compounds and engineering, after which to American dominance within the period of mass manufacturing, computing and the web. Historical past hardly ever presents second probabilities. The approaching AI wave may be one for Europe. However seizing it should require greater than capital and expertise. It can require readability of goal.
Europe should keep in mind that the most effective concept Europe has ever had is Europe itself. This chance will stay out of attain if the continent stays fragmented—strategically, financially, and technologically. The second AI wave can solely be seized if Europe learns to behave as a united AI continent.
Maybe there’s a deeper irony right here. Synthetic intelligence, usually seen as a centrifugal drive, may develop into a centripetal one for Europe—augmenting not solely productiveness, however collective intelligence. If AI helps Europeans suppose, construct, and innovate collectively, it could lastly allow what politics alone has struggled to attain: a continent that actually acts as one. The longer term AI industrial leaders are being based in the present day. Europe ought to make sure that lots of them are based collectively.
Francois Candelon is a associate at personal fairness agency Seven2 and the previous international director of the BCG Henderson Institute.Learn different Fortune columns by François Candelon.
Theos Evgeniou is a professor at INSEAD and a cofounder of the pan-European AI startups initiative eurx.ai, the belief and security firm Tremau, and the AI technique consulting agency NoesysAI.
Thomas Ramge is the creator of greater than 20 books on science and know-how, an related researcher on the Einstein Heart Digital Future, and a cofounder of eurx.ai.
The opinions expressed in Fortune.com commentary items are solely the views of their authors and don’t essentially replicate the opinions and beliefs of Fortune.
