Investment in European artificial intelligence (AI) start-ups is on the rise as the European Commission unveiled plans last week to bolster its capabilities to become an "AI continent". But the current global trade turmoil could threaten that progress.
European AI investment saw venture capital funding up 55 per cent in this year’s first quarter compared to the same period last year, according to new data from Dealroom analysed by Balderton Capital and shared in a first exclusive with Euronews Next.
The data showed that AI companies have already raised $3.4 billion (almost €3 billion), up from $2.2 billion (€1.9 billion) in Q1 2024. It also showed that European tech stocks, excluding AI, are down 10 per cent.
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 also struck Europe with a 20 per cent tariff rate on duty exports to the US, before being temporarily lowered to 10 per cent.
Over the weekend, Trump said electronic devices such as smartphones and computers would be exempt from the US duties.
While the news eased Europe’s tech stocks on Monday morning, the path forward is still obscured, especially as Trump said on Sunday that he would announce taxes on imported semiconductors this week, which are the building blocks for AI technology.
Don't count European AI out
Volatile trade environment always makes investors more risk-averse, Daria Gneusheva, an investor at German venture capital company Project A.
"Many European companies rely on components like GPUs and semiconductors from Asia and will see a price spike and disruptions in hardware procurement," she told Euronews Next, adding that entering US markets will also become more challenging and less attractive.
However, she said that the trade war is also "becoming a big push" for European companies and governments to keep investing in local manufacturing and R&D.
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".
Launching foundational AI models has become a geopolitical race, which nations argue is a matter of national security.
The United States and China are pushing far ahead of Europe in building foundational models, according to a recent report by Stanford University.
However, Balderton noted that investment in European AI firms largely went to companies covering health, AI media, cyber security, and robotics.
The data also showed that interest in Europe’s AI agents has risen, with $52 million (€45 million) deployed to new start-ups working on these tools, including Stockholm-based firms Lovable and London-based Paid AI.
The AI Action Plan
Last week, the EU’s technology commissioner Henna Virkkunen announced the AI Continent Action Plan covers infrastructure, data access, cloud, skills, and simplification and aims to transform Europe's traditional industries.
It is important "to build capacities in critical sectors” to ensure that the bloc is not dependent on other regions, she said.
"We have identified AI as one of the sectors where we need to build our own capacity, like quantum and chips. They are key technologies for the future".
This year, there have also been two new AI unicorns, companies that have reached a valuation of $1 billion (€1 billion) without being listed on the stock market. They are Sweden’s Neko Health and Ireland’s Tines, which brings the total number of Europe’s AI unicorns to 76.
How did European countries fare?
Despite being out of the European Union’s plans for AI development, the UK raised the bulk of AI investment in Europe, with around $4.2 billion (€3.6 billion) raised by British start-ups and scale-ups this year so far, $1.6 billion (€1.4 billion) went to AI companies.
Germany also saw AI investment increase by 74 per cent for this year’s first quarter, compared to last year to $404 million (€355 million).
However, France, whose government has pushed for investment in AI and boasts companies such as Mistral AI, has seen a dip of around 18 per cent in the first quarter of this year compared to last year.
But Balderton found that French Q1 investment overall was down 26 per cent and that AI investment was fairing better than French tech overall.
The French government has pushed for the country’s AI development and this year hosted the Paris AI Action Summit. On the eve of the event, President Emmanuel Macron announced investments worth €109 billion into AI over the next few years.
"It's the equivalent for France of what the United States announced with Stargate," Macron said, referencing the US project that aims to invest $500 billion (€438 billion) in building new AI infrastructure over the next four years.
"European AI ambition is only getting stronger. The AI Action Summit in Paris set the bar high on what needs to be done in Europe and it’s great to see that European startups and scaleups are rising to challenge," James Wise, partner at Balderton Capital, said in a statement.
"From healthcare to cybersecurity and automation, European AI companies are building solutions that are desperately needed and the pace of funding demonstrates that investors are excited about the continent’s technological potential".
