Europe’s reliance on foreign technology and difficulty scaling start-ups threaten its digital sovereignty and global competitiveness. To close the gap, the EU must simplify and standardize regulations to help businesses expand across member states, strengthen domestic artificial intelligence (AI) computing, cloud and energy infrastructure and accelerate AI adoption.
The European Union’s (EU) technological future is at a crossroads as the rapid rise and integration of transformative technologies, such as artificial intelligence (AI), coincides with a period of significant volatility and heightened global rivalries.
The continent possesses the research excellence, industrial capability and talent required to thrive in this “Intelligent Age,” but it risks falling behind other players and losing digital sovereignty. To succeed, the EU must invest in its own infrastructure, technologies and people.
Building its position in the digital space requires coherent and uniform reforms and initiatives that allow innovation to thrive and provide finance to scale, providing European companies a competitive edge.
Europe has a technology gap
The world's largest trade bloc in combined goods and services has been outpaced by the United States and China in the Intelligent Age.
US hyperscalers control nearly 70% of Europe's cloud market, while China leads in AI patents. Europe has produced just three foundation AI models to the US's 40 and China's 15. Similarly, the US accounts for nearly three-quarters of global high-end compute, with China at 14%, and the EU at 4.8%.
The Federal Reserve analysis puts cumulative private AI investment since 2013 at over $470 billion in the US, against roughly $50 billion across EU countries. Chinese local government venture funds alone have directed $184 billion to nearly 10,000 AI-related firms.
The gap shows up in AI industrialization too: 81% of AI-using US firms have deployed generative AI across more than two business functions, compared to 55% of their European counterparts.
The result is a scale-up problem. Only four of the world's top 50 tech companies are EU companies; just 331 unicorns in 2025 were from the EU while there were 1,963 in the United States.
Closing this AI-fuelled technology gap will require a commercial environment where innovators can scale seamlessly across the continent and beyond. An environment in which tech champions thrive.
Until a year ago, the EU was experiencing an exodus of top talent to the US. However, funding cuts and political uncertainty in the United States are reversing the trend.
This new pattern provides the EU with an opportunity to create the conditions allowing top researchers, engineers and founders to build and, crucially, stay. This inflow is fragile, however, as some EU technology professionals earn less than half of what their US counterparts earn. A lack of competitive pay, equity incentives, funding and career paths could mean losing the current momentum.
How the EU can build European tech champions
To build its own digital sovereignty, the EU must form a coherent approach to create technology champions. Here are four practical levers to form its strategy:
1. Create a single, streamlined springboard for scaling-up
While the EU is the largest single trading bloc in the world, its 27 member states have different legal frameworks and more than 60 legal company types between them. This fragmented regulatory and bureaucratic landscape can slow growth and make fixed investment more costly as companies cannot serve the whole European economy from a single regulatory, commercial or operational base.
A recent survey of European tech founders showed that 79% had been materially impacted by EU regulatory complexity. It caused 58% to delay cross‑border market entry, while 52% avoided EU markets over compliance concerns and 44% lost or delayed deals.
Damningly, nearly a quarter (24%) of tech founders are considering or have already relocated their headquarters due to regulatory complexity.
Accelerating the adoption of enabling measures, such as the EU Commission's 28th regime, is crucial. This proposed corporate law framework would give innovative companies an overarching alternative to those 27 national systems: the “EU Inc.” company form, designed to let start-ups and scale-ups establish, finance and grow across the Single Market without relocating outside Europe.
2. Address funding gaps
In addition to relevant markets and regulatory frameworks, integration must also apply to capital markets in which technology companies are financed.
The EU’s Savings and Investment Union should break down national barriers between investors and companies, channel more institutional capital into high-growth businesses and create credible exit routes through acquisitions, public listings and secondary markets.
The EU hosts over 40,000 VC-funded tech companies and creates more than any other region globally, but most struggle to transition into global-scale businesses without having to relocate or sell to foreign buyers.
Scale is part of the issue: European Central Bank data puts total fund size in the United States at around €930 billion, more than six times as much as the approximate €150 billion of funds located in the EU.
However, the most vital area to address is the later-stage funding bottleneck. Smaller funds and fragmented national capital markets have meant European tech start-ups have consistently struggled to raise the huge sums necessary to expand onto the global stage, in stark contrast to their US counterparts.
The EU Commission's Draghi Report indicates that in 2023 the EU's later-stage VC investment stood at $18 billion, compared with $100 billion in the US. Closing this gap is essential to nurturing promising start-ups into European tech champions.
3. Developing and investing in sovereign infrastructure
Europe does not need to develop more frontier AI models, but it should build a sovereign AI compute, cloud and energy infrastructure on its own soil and under its own control. This provides homegrown businesses with a secure, high-tech foundation – key to breaking the reliance on overseas core infrastructure supporting AI and other frontier technologies.
The EU has deployed 19 AI factories in the past 18 months, launched a formal process for up to seven AI gigafactories, created a €20 billion AI-compute financing facility, awarded a €180 million sovereign-cloud contract for EU institutions and agencies and begun integrating data centres into its energy and digital infrastructure planning.
Continuing and extending this infrastructure rollout will secure digital sovereignty for developing European tech champions.
However, building sovereign infrastructure is only half the task. Europe must also use public procurement to create a core market for it, making EU governments anchor customers for open-platform European technology, not just in the form of policy commitments, but in actual investments.
4. Accelerating industrial AI adoption
Initiatives such as the AI Continent Action Plan and the Apply AI Strategy show Europe sees accelerating and broadening the industrialization of AI as critical to its strategic and commercial future.
Moving AI beyond pilot programmes is also a commercial catalyst for potential tech champions. When businesses expand AI into full production use, they become larger, longer-term customers for the tech companies supplying those tools. They can give European start-ups and scale-ups the revenue and proven demand needed to attract the later-stage investment required to grow into global players.
However, the European Commission identifies limited access to high-quality, interoperable data as a structural barrier to AI adoption, and its 2026 analysis of agentic AI points to fragmented data as an obstacle to scaling deployment.
Open tech architectures are equally vital, preventing established vendors from locking European AI innovators out of the tech stack.
Europe can build, and has built, tech giants to rival the world’s best; now it must accelerate this process in the AI era by building European technology champions to shape the Intelligent Age and ensure success and sovereignty.
