Europe’s tech at ‘crossroads’. AI, defence and climate tech will define bloc’s future, report

Europe’s technology ecosystem is at a “crossroads,” and if it wants to keep the pace of progress, sustained investment in sectors such as climate tech, artificial intelligence (AI), and defence will “define Europe’s next decade,” venture capital firm Atomico warned in its State of European Tech 2025 report.

Yet, the report states that Europe has the talent and innovation but that Europe lacks “alignment between ambition and commitment”. It is calling for Europe to power its first trillion-euro company.

“Sovereignty in technology isn't about protectionism, it's about agency and choice – building the capability, confidence and capital to shape the future, while retaining the freedom to act independently and lead on Europe’s own terms,” Tom Wehmeier, partner and head of intelligence at Atomico, said.

The annual report uses public data and a survey of approximately 2,500 players in the tech industry to give a snapshot of where the continent is with technological advancement.

Europe’s funding landscape has already moved towards AI dominance, with 31 per cent of all funding raised in 2025 going to AI or machine learning companies, the report found.

The single biggest European investment in 2025 was from French AI company Mistral AI with e $2 billion (€1.73 billion). This was followed by $1.1 billion (€952 million) raised by data centre start-up Nscale.

AI coding companies have also seen rapid growth in Europe.

Swedish start-up Lovable reached a $1 billion (€865 million) valuation in just six months since its debut.

The report said that other AI companies poised for global market leadership are Synthesia, the AI video content platform, and n8n, an AI workflow company.

Defence tech

Another tech industry that is seeing growth is in defence, the report said. Overall, technology advances in defence attracted $1.6 billion (€1.38 billion) this year, up from $1 billion (€865 million)in 2024, which is “well above any level of investment” that the sector has brought in the past decade.

A third of Europe’s defence investments went to a single company: Helsing, the German firm that uses AI in its drones and submarines.

Other defence contractors, Isar Aerospace, Cambridge Aerospace, Quantum Systems and Roark Aerospace also saw large funding rounds this year.

Still, the report noted that the funding that European defence tech has been able to raise goes into a more diverse set of companies than in the United States, which means the economy operates at a smaller scale.

More talent, research funding needed to keep up

To keep up the pace of development, the report advises that Europe must continue recruiting the world’s top AI talent.

The continent is already doing that, it says, with a talent base that is expanding by 22 per cent every year since 2016.

The report also said the bloc needs to match the way that the US is investing in technology research and development. While the EU invests roughly the same amount in dollar figures as its American counterparts, Europe’s research investors are concentrated in industrial and manufacturing sectors instead of in software and AI.

“This matters because it shapes where innovation happens,” the report said, adding that most of the money is tied up in “legacy sectors” instead of “digital infrastructure, compute or deep tech capabilities”.

More investment is also needed in computing power to compete with the US and China, which together hold 87 per cent of the world’s computing graphics processing units (GPUs).

"Europe's mission has never been stronger. The talent, ambition, and ideas are all in place. What's missing are the conditions to match that potential: simpler regulation, more patient capital, and public commitment,” said Sarah Guemouri, principal at Atomico.

"This year’s report is our blueprint for change, because the next decade will decide whether Europe leads the next tech era or lets others define it".