The European Artificial Intelligence (AI) ecosystem has seen unprecedented growth in the past few years. In fact, a recent report by Roosh in partnership with Dealroom found that AI funding in Europe has increased tenfold in just ten years. This year alone, GenAI funding in Europe has increased more in the first six months than in any other year to date.
This growth did not happen in a vacuum, it is driven primarily by US investors, whose influence cannot be underestimated. As of mid-2024, US investors are investing 20 times more in Generative AI in Europe than any other country. The Magnificent Seven (Apple, Tesla, Alphabet, Amazon, Nvidia, Microsoft, META) made a record 15 deals with European AI startups last year, and now back many of Europe’s most prominent AI companies. But these tech giants are not the only ones involved in the EU’s AI infrastructure: 40-50% of late-stage funding (over $40 million) into European AI companies has come from US investors, and over 70% of rounds over $40 million had at least one US investor participating.
Intellectually, the US also leads the way: a recent study found that 73% of large-scale language models (LLMs) are developed in the US, and over 70% of cited AI papers have at least one US-based author.
What this level of engagement means for the EU's AI ecosystem
Microsoft's recent $16 million investment in Mistral has rekindled EU concerns about US investor involvement. On the one hand, the benefits for Mistral are clear: the distribution agreement, combined with the resources it needs to scale and grow, gives the company an efficient path to global expansion. With Microsoft's backing, Mistral could eventually grow to challenge the current US technology monopoly. But on the other hand, the deal increases US corporate investor involvement in a prominent French technology company. This has drawn UK and EU scrutiny. The UK's Competition and Markets Authority (CMA) did not proceed with an investigation into Microsoft's AI investments, but did note “real concerns”.
In the debate over AI legislation, France, Germany and Italy have advocated for loosening restrictions on companies that create GenAI models. Some commentators see this move as influenced by large companies such as Microsoft. This indicates that private companies may be able to effectively lobby European legislative practices (something not seen before in other technology industries). If European economies want to survive and even compete in the American AI market, they will need to make decisions about their desired level of sovereignty.
It is worth noting that Microsoft's initial investment in OpenAI, a US company, was around $1 billion. A competition of this scale requires US investment, and it is wishful thinking for EU companies to pretend otherwise. If European AI companies want to expand globally, they clearly need the material resources, financial support, and intellectual leadership that US-led investment and US infrastructure provide.
The “Brussels effect” is not over yet
The trade-off between European regulatory advantage and the influence of US capital may not be as unfair as it seems. While the US may have historically led the way in terms of investment and knowledge, the international success of EU regulatory programs such as GDPR speaks for itself. Emerging and fast-growing economies such as Brazil and Nigeria, along with countries such as Canada and South Africa, are also incorporating aspects of GDPR into their legal frameworks. And US companies will need to comply with these regulations to enter these markets, and the EU itself.
The lawsuit against Microsoft for OpenAI's illegal use of data to train AI models suggests that the tide is turning in the US on AI regulation, with Europe playing a major role here: US lawmakers are watching what happens in Europe and how markets and consumers will react to regulations imposed on emerging technologies like AI.
While European AI companies may need U.S. investment to expand, this does not mean that European legislative power is at risk. Rather, as U.S. regulators sound the alarm about the impact of this paradigm-shifting technology, the coming year may see major U.S. technology companies follow legislation that mirrors Brussels' lead. As regulatory concerns grow, U.S. investors would be wise to study Europe's fast-growing AI companies and the market environment in which they continue to thrive.
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