United States remains the undisputed global powerhouse in technological innovation. One indicator is the stock market: eight of the world’s top ten companies by market capitalization are American, including Nvidia, Microsoft, Apple, Amazon, Alphabet, Meta, Broadcom, and Berkshire Hathaway (the only non-tech firm among them).
To find European representation, you have to go down the ranking to at least the top 50, featuring German software giant SAP and Dutch semiconductor leader ASML.
These figures show that Europe’s presence in global tech remains limited compared to the U.S., but the question is: is the situation starting to change?
Europe pays the bill for America’s AI hardware
Just a few weeks ago, the U.S. and the European Union signed a trade agreement. Europe secured limitations on tariffs for car, pharmaceutical, and semiconductor exports, while the U.S. obtained commitments on defense, energy, and chip purchases.
European Commission President Ursula von der Leyen herself admitted that “U.S.-made AI chips will feed our European gigafactories and help the U.S. maintain its technological lead”. The EU is set to invest around €40 billion in cutting-edge American chips.
If we stick to her words (specifically the quote “maintain its technological lead”) and to the fact that Europe is spending billions on U.S. technology, the answer to whether we are closing the innovation gap seems negative.
Other factors reinforce this view: lower venture capital investment, regulatory rigidity, infrastructure gaps, and energy dependency.
Europe’s wake-up call for a true Digital Single Market
Against this backdrop, European entrepreneurs and startups are mobilizing to demand that Brussels finally creates a real Digital Single Market and adopts a more flexible approach to AI regulation.
Also, the famous Mario Draghi’s 2024 report on European competitiveness makes similar points:
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Europe needs to close a €700 billion annual investment gap with the U.S. in technology and innovation.
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Fragmentation is Europe’s ‘hidden tax’: without a true digital single market, scaling across borders is too costly.
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The report urges more risk capital, a Capital Markets Union to allow cross-border financing, and massive investment in chips and clean energy.
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It also highlights the importance of talent attraction: Europe must become a magnet for top researchers and entrepreneurs.
Similarly, 25 European business associations recently demanded a genuine digital single market to enable startups to scale continent-wide under unified rules.
Startup Valencia CEO Nacho Mas also recently highlighted this issue, pointing out bureaucracy and regulation as barriers to European innovation. Also, the high-growth tech companies and investors platform EsTech, together with the Spanish Association for the Digital Economy (Adigital), will hold the 3rd Scalability Day on 23 October within VDS, one of Europe’s leading international tech events.
This gathering highlights the impact of scaleups on the economy, productivity and the international leadership of Spain and Europe.
Concrete success stories also illustrate Europe’s potential. In August 2025, Valencia-based startup Maisa closed a €25 million seed round, the largest ever recorded in Spain. Backed by Creandum, the company is building a platform to deploy trustworthy AI agents at scale—an example that ambitious innovation can emerge in Europe despite structural handicaps.
Is regulation Europe’s Achilles’ heel or its competitive edge?
When talking about innovation, regulation is the elephant in the room. Europe’s AI Act, which entered into force in August 2024, is the world’s first comprehensive framework for artificial intelligence.
Critics see it as restrictive: Meta’s Chief AI Scientist Yann LeCun warned that over-regulating open-source AI could hurt Europe’s competitiveness. Startups fear compliance costs will slow them down.
But there is another side to the story that forecasts success for this regulation model in the long term, arguing that the AI Act sets clear rules of the game, giving legal certainty to startups and corporates and perhaps becoming an exportable model, just like the GDPR did for data protection.
It’s a gamble, and most observers remain skeptical about it, but specific support measures for SMEs, such as AI sandboxes, simplified documentation, and guidance on data protection could turn into long term winners.
Meanwhile, across the Atlantic, regulation is far less structured: the U.S. relies on voluntary frameworks, and even leading American CEOs including Elon Musk and Sam Altman called in 2023 for a pause in frontier AI until clearer rules emerged. Europe is, paradoxically, the first mover here.
And let’s not forget Europe’s crown jewel: ASML, the Dutch company that dominates lithography machines for advanced semiconductor production. Without ASML’s EUV technology, there would be no AI revolution neither in Silicon Valley nor in Shenzhen.
Beyond regulation: Europe’s other strengths
Europe may not win the race in terms of sheer financial muscle (Zuckerberg can hand out $100 million checks to AI researchers overnight) but it offers something different:
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Social model & quality of life: universal healthcare, strong education systems, and safety nets make Europe attractive for researchers and founders who value more than just money.
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Education and talent: Europe produces world-class STEM graduates and hosts leading research centers in quantum, robotics, and biotech.
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Talent repatriation and attraction: with the right visas and incentives, Europe could bring back part of its diaspora and attract international talent looking for stability and ethical standards.
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Values & trust: Europe can position itself as the home of responsible AI, an angle increasingly important for citizens and customers worldwide.
Looking ahead: how can Europe reduce the gap?
If Europe cannot compete euro-for-dollar with the U.S., it needs to differentiate strategically. Draghi’s recommendations, along with the demands from startups and entrepreneurs, point to clear paths forward. Strong leadership is needed to turn them into action:
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Capitalize on the AI Act: make regulatory clarity a feature, not a bug. Offer “compliance by design” as a selling point for European startups.
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Massive investment in chips and compute: not only buying from the U.S., but building sovereign capacity leveraging ASML and boosting EU datacenters.
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Complete the Digital Single Market: enabling startups to scale like in the U.S. or China.
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Talent-first approach: attract and retain top minds with visas, funding, and quality of life.
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Procurement as a lever: governments should buy and test AI solutions from local startups, creating early markets.
If Europe cannot outspend the U.S., it must outsmart it by building a model that combines innovation, ethics, and social trust.
