Investment in European AI start-ups is on the rise, signaling a promising future for the continent’s technology sector. However, concerns remain over how ongoing global trade disputes—particularly the trade war between the U.S. and China—could threaten this progress.
In the first quarter of 2025, venture capital funding for AI start-ups in Europe surged by 55%, totaling $3.4 billion (€3 billion). This marks a significant increase from the $2.2 billion (€1.9 billion) raised during the same period in 2024. While this growth is promising, overall European tech stocks, excluding AI, saw a 10% decline, highlighting the potential risks that may arise in a volatile global market.
Impact of U.S. Tariffs on European AI Investment
The rise in AI investments comes at a time when U.S. President Donald Trump’s trade war continues to impact global markets. Trump’s imposition of high tariffs on Chinese imports, including a 125% tariff on certain goods, has already disrupted global supply chains, including in Europe. The U.S. also applied a 20% tariff on European exports, which was temporarily reduced to 10%, further complicating the economic landscape.
In recent developments, Trump exempted electronic devices such as smartphones and computers from U.S. tariffs, providing temporary relief for Europe’s tech sector. However, the U.S. is expected to announce new taxes on imported semiconductors, which are critical components for AI technology. This could pose challenges for European AI companies, which are increasingly reliant on advanced semiconductor technology to develop their products.
Europe’s Growing AI Sector and Investment Surge
Despite these challenges, the European Union (EU) remains committed to becoming a leader in AI development. According to a report by Balderton Capital, AI companies in Europe are gaining significant investment, particularly in sectors like healthcare, cybersecurity, and robotics. Stockholm-based Lovable and London-based Paid AI are among the start-ups benefiting from this funding, with a total of $52 million (€45 million) invested into AI-driven solutions.
The European Commission has also unveiled its AI Continent Action Plan, aimed at building stronger AI infrastructure, improving data access, and fostering innovation in AI. Henna Virkkunen, EU’s technology commissioner, emphasized that AI, along with other emerging technologies like quantum computing and chips, are critical to Europe’s future technological sovereignty.
The AI Unicorns of Europe
The rise of AI investment in Europe is evident in the increasing number of unicorns—start-ups valued at over $1 billion. This year, Sweden’s Neko Health and Ireland’s Tines joined the ranks of AI unicorns, bringing Europe’s total to 76. These milestones underscore the growing recognition of Europe’s AI potential.
While Germany saw a 74% increase in AI investment for the first quarter of 2025, France experienced a slight dip of 18%. However, French AI investments still outpaced the overall decline in French tech, which saw a 26% drop in the same period. The French government remains committed to AI development, with President Emmanuel Macron announcing a €109 billion investment in AI over the coming years.
AI’s Geopolitical Importance
AI is increasingly becoming a matter of geopolitical importance. Countries like the U.S. and China have pushed ahead with the development of foundational AI models, which are seen as essential to national security and economic dominance. Europe is keen to catch up but remains behind in this race, according to recent reports by Stanford University.
Despite this, European start-ups continue to innovate and attract substantial investment, and the EU’s AI strategy aims to foster a more resilient, autonomous AI sector that can compete globally.
Conclusion: Optimism Amid Uncertainty
European AI start-ups are poised for significant growth, with substantial investments driving the sector forward. However, the ongoing global trade tensions, particularly related to the U.S. tariffs and semiconductor tax proposals, could introduce uncertainty. As Europe pushes forward with its AI ambitions, it will need to navigate these challenges carefully to maintain its competitive edge in the global AI race.