Fresh projections from Oxford Economics indicate that between 2021 and 2026, real investment in new equipment and facilities by US companies is expected to surge by 40%. In stark contrast, the Eurozone is projected to see a modest increase of just 12% during the same period, with German business investment nearly grinding to a halt. These figures highlight the expanding chasm between the world's two largest advanced economies as the artificial intelligence wave reshapes capital spending.
The research firm points to a dramatic surge in spending on AI-related equipment as the primary catalyst for America's investment surge. Europe was already trailing the US in information technology investment before the advent of large language models, but this gap has widened considerably since ChatGPT's debut in late 2022. Tech behemoths like Google, Meta, Microsoft, and Amazon are accelerating their build-out of AI infrastructure, with combined annual investment projected to exceed $725 billion in 2026 alone.
Meanwhile, Europe has shown little progress in bridging this investment shortfall. The situation has not markedly improved since former European Central Bank President Mario Draghi released his much-anticipated competitiveness report in September 2024. Draghi warned that the scale of investment needed for digitalisation, decarbonisation, and increased defence spending would be "unprecedented," exceeding even the post-WWII Marshall Plan's stimulus. Daniel Hallenberg, an economist at Oxford Economics, notes that the US economy, with its greater dynamism and entrepreneurial spirit, is moving faster and reaping higher returns in the AI race, while Europe appears distinctly sluggish.
The productivity chasm between the two regions is also widening. Analysis from Professor Bart van Ark of the University of Manchester shows that US GDP per hour worked jumped by $14 between 2018 and 2025, compared to a mere $2 increase in Europe. He highlights that the disparity extends beyond the digital economy, with the US also outperforming Europe in sectors like wholesale, retail, and professional services. However, van Ark argues that simply increasing investment won't resolve Europe's productivity woes, suggesting the deeper issue lies in the ineffective diffusion of innovation to businesses and their slow adoption of new technologies and tools.
Europe's approach to AI regulation is also drawing scrutiny. The EU's Artificial Intelligence Act, enacted in 2024, stands as the world's first comprehensive legal framework for the technology. Yet, critics contend that such stringent regulation could stifle innovation and dampen investment enthusiasm. French President Emmanuel Macron warned two years ago that Europe was "over-regulating and under-investing," risking disconnection from global trends. European Central Bank President Christine Lagarde echoed this sentiment last year, stating that Europe's manufacturing-dependent growth model is "geared toward a world that is fading away." Karsten Junius, chief economist at Swiss bank J. Safra Sarasin, is more blunt, asserting that Europe has missed the latest wave of frontier technology.
However, the United States is not without its own vulnerabilities. The Bank for International Settlements cautioned in June that if AI investment returns fail to meet expectations, it could trigger a prolonged "investment slump." Junius believes US AI investment cannot sustain its current pace indefinitely, noting the cyclical nature of information technology and semiconductor investment. He adds that Europe's innovation deficit and rigid labour markets compound its problems, warning that if the continent fails to catch up in frontier technologies, its relative standard of living will continue to decline.