Some races are won or lost in the first moments after the starting whistle, so let’s get this out of the way: as a whole, Europe is not competitive with the U.S. or China in developing the high-scale, foundational large language models (LLMs) on which the AI economy depends.
Does this mean that Europe has lost its chance to benefit from the AI revolution on equal terms with the U.S.?
Not necessarily. The value of AI mostly manifests in how firms use the technology, says Matthias Tauber, who leads Boston Consulting Group’s operations in Europe, Middle East, South America, and Africa. “When it comes to AI adoption, we don’t see a difference between European or U.S. companies. Whether they will be winners, yes or no, will be determined by who drives adoption faster,” he tells Fortune.
In other words, it’s still all to play for.
“When it comes to AI adoption, we don’t see a difference between European or U.S. companies. Whether they will be winners, yes or no, will be determined by who drives adoption faster.”
Which companies are ahead also depends on their sector. Alongside the obvious candidates like IT, many of Europe’s leading industries—like automotive, biopharma, fintech and aerospace—are among those where AI significantly impacts core activities, rather than just supporting functions. This makes them both ripe to benefit from AI deployment, and vulnerable to external disruption of the kind already playing out in electric vehicles.
That blend of threat and opportunity has made firms in these sectors more likely to actively lean into the new technology. “Here we see early adopters boosting productivity with AI, for example, by accelerating drug discovery, conducting more accurate simulations and improving product design,” adds King.
Larger companies are “typically able to invest more, have stronger change management skills and benefit from larger datasets.”
The main way that Schneider Electric benefits from the AI boom is more direct, though, due to its role as a leading global supplier of electrical components used in data centers, alongside others like the Netherlands’ ASML, a key technology supplier for advanced semiconductor manufacturers.
Not everyone is proving so enthusiastic, however. As in other countries, there are also prominent sectors of the European economy that tend to lag in AI adoption, such as utilities and telecommunications—ironically, sectors that themselves underpin the rollout of AI. King explains that these struggle with fragmentation, access to capital, and weak AI capabilities due to low AI literacy and a lack of concrete use cases with clear return on investment.
This causes two problems. First, the additional burden on the grid will apply upward pressure on Europe’s high energy prices, which already weigh on industrial competitiveness. Second, if Europe’s energy infrastructure investments can’t keep up with data center demand, then it risks constraining AI adoption for European businesses.
It’s not just the lack of power per se. Data centers depend on an uninterrupted energy supply, but the product they facilitate creates demand spikes that make outages more likely. If there’s too much volatility, it can impede their operations, add costs and disincentivize further investment.
“If you’re a data center operator, you’re sat in the middle of double uncertainty, with more volatility coming in on the demand side and more volatility on the energy market side,” says Jade Batstone, cofounder and CEO of Zendo, a startup helping data centers become more energy efficient.
The danger for Europe’s competitiveness is that its economy could fall relatively further behind on both AI and energy prices, in the absence of accelerated, simultaneous investment into both sets of infrastructure.
This points to the one area where Europe has something of an advantage over the U.S.—the intersection between data centers and renewable power.
“While high energy costs may weigh on Europe’s competitiveness today, particularly in energy-intensive industries, smart deployment of AI combined with the continent’s leadership in renewables technologies such as offshore wind could help reduce both emissions and costs in the long-term,” King adds.
But fully renewable data centers may not be so straightforward to achieve, notes Zendo cofounder and COO Drew Barrett: “You’re going to really struggle to do that in grids that haven’t deeply decarbonized already.”
While some may see such regulation as an additional barrier to investment, Avice Huet argues that “decarbonization is not a constraint on competitiveness; it is central to Europe’s ambitions for growth and industrial strength.”
But while European lawmakers’ studied focus on consumers over businesses has resulted in world-leading laws on data protection and sustainability, Tauber says it has still complicated the private sector’s ability to actually compete. Given the complexity and fragmentation of EU legislation, which is interpreted differently across member states and sits on top of multiple layers of domestic law, Europe should deregulate, he says.
There has been some progress in simplifying regulations. The EU’s AI Continent Action Plan proposes streamlined permitting for data centers that meet energy and water efficiency standards, meaning green data centers are preferentially incentivized. Avice Huet sounds an optimistic note: “With a continued focus on cutting the red tape, electrification, digitalization, and grid modernisation, Europe can emerge stronger, more resilient, and more competitive on the world stage.”
