The global market of generative AI is predicted to grow by 30-40% each year. There is intense competition to attract new business. Although the United States is undoubtedly winning this battle currently, some European countries are also considered hotspots for creating new AI startups.
The global AI market is projected to speed up
Generative AI technology, that generates new text or video and enables faster product development, is a market that's booming. Globally it was valued at more than €130bn in 2023.
Stanford University's latest AI report notes that most private investment, €62.5bn, took place in the US in 2023, followed by China (€7.3 bn). Both the EU and UK together saw €9bn worth of investment.
Last year, the number of newly founded AI companies grew globally by more than 40%.
The hottest locations to create an AI company - in Europe
According to new rankings, the US takes the crown for the best country for starting an AI business, boasting the highest number of newly funded AI companies, according to a report by AI prompt management tool AIPRM.
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Out of the 14 countries analysed, six are from Europe. The report ranked the best countries to create an AI startup based on factors such as the number of newly funded AI companies, total private investment, research and development (R&D), finance for startups and revenue growth. (Data used for this study was sourced from Stanford's AI report and Deloitte's study on the subject, among others.)
Singapore scored the second best ranking and Sweden is the third in line, with outstanding revenue growth of 1,127%.
The business environment boosted the scores of Switzerland, which took fourth place globally. Germany also scored high but still appears to have a less friendly business environment and finance for startups than Switzerland, leaving Europe's strongest economy in sixth place.
Spain was highly rated for its business environment and finance for startups and placed higher than Germany and France.
The latter scored 68.58/100 and was ranked as the 9th best place in the world to set up an AI business. France has a total private AI investment of $10.4bn (€9.42bn), and is home to the highest number of newly funded AI companies in the EU. However, AI hiring in France has slightly decreased in 2023 compared to the previous year.
"Starting up in AI is becoming increasingly competitive, as the industry continues to develop and grow at a rapid rate," said Christoph C. Cemper, founder of AIPRM.
What Europe can gain
Generative AI could add $575.1bn (€521 billion) to the European economy according to global management consulting company McKinsey & Company. That equals about one-tenth of the German GDP.
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To further assess Europe's competitiveness in this emerging market, European organisations need to adopt AI technologies more widely.
In the market of creation, Europe leads in only one of the eight segments, AI semiconductor equipment. The continent has less than 5% market share in raw materials, AI semiconductor design, AI semiconductor manufacturing, and cloud infrastructure and supercomputers according to the McKinsey report.
To support investments, in January 2024, the European Commission launched an AI innovation package to support artificial intelligence startups and SMEs.
The report suggests further increasing investments, for instance in AI applications for healthcare and defence sectors, and support programmes that target re-skilling the workforce and retaining talent.
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Another key element is to achieve competitive energy prices in Europe. AI is expected to accelerate data centre power demand, which could reach as high as 5% of total electricity consumption by the end of this decade.
In Europe, labour productivity has been slowing, the McKinsey research estimates that generative AI could boost Europe's annual productivity growth rate by up to 3% through 2030.
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