Europe’s second chance on AI: building an opportunity in factories, labs, and the real economy

For much of the last three decades, Europe has played a back-footed role in the digital economy: influential in regulation, strong in research, but rarely the place where globally dominant technology companies are built. The internet era created extraordinary wealth elsewhere. The same holds true for the recent AI wave, mainly driven by online chatbots created by the data-rich Big Tech giants which have grown up in the internet era. Europe, despite its talent and financial strength, became the least competitive of the major digital economies—and the resulting gap in value creation has grown into the trillions.

That story is well known. What is less appreciated is that a second innovation wave in the emerging AI era may offer Europe something rather rare in technology development: a historic second chance. 

Artificial intelligence today is largely about bigger foundation models mainly trained on internet data; larger data centers; and ever more capital-intensive computational scale. This is where the vast majority of investment capital currently goes. Nobody can know today if these huge bets, often framed as a race to “artificial general intelligence,” or AGI, will in the end pay off for the latecomers to the Nvidia, OpenAI, and Anthropic gamble. But one thing is now becoming clear: The next round of AI innovation will not be won solely in chat windows. It will be won where intelligence meets matter: in robotics and manufacturing, in chemistry and materials, in bio-pharma and healthcare, in energy systems, logistics networks, and industrial operations. In other words: in the physical and scientific domains. 

And this is precisely where Europe’s underlying advantages are hiding in plain sight. Three key factors may prove more critical going forward than they did in the previous internet-dominated AI era: (1) scientific talent; (2) industrial strength and know-how; and (3) ecosystems across multiple sectors. Interestingly these are all areas where Europe’s strengths lie. AI innovation and adoption going forward will arguably be defined by the availability of industry-specific data, know-how, and ecosystems, as well as scientific talent spanning both AI and domain expertise, more than from pure computation and internet dominance. 

A look at the fundamentals may be quite surprising for European as well as American investors. The EU accounts 22% of global AI research citations, vs 17% for U.S. researchers. And 2.2 million STEM graduates get their diplomas from European universities each year, compared to 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 unlike the U.S. corporate community, which is strong mainly in software, Europe’s industrial base is enormous and automation-ready: EU manufacturing generates €2.5 trillion in value added and operates at 219 industrial robots per 10,000 employees—exactly the substrate where AI’s next productivity wave will land. 

Finally, Europe’s underestimated advantage is that it already runs EU-funded, cross-border ecosystems that stitch together universities, industry, startups, and the public sector—not as a slogan, but as infrastructure. On its own, the EU funding program Horizon Europe puts €93.5–€95.5 billion (2021–2027) into collaborative research and innovation across fields from health and........

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