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European GenAI spend could exceed $30 billion by 2027

GenAI comprised 9.6% of the total European AI spend in 2023, but will account for quarter of the market within the next three years, according to a new IDC report.

By Tech Monitor Staff

The Worldwide AI and Generative AI Spending Guide forecasts a compound annual growth rate of 33.7% for the continent’s AI market between 2022 and 2027. Europe currently accounts for approximately one-fifth of the global AI market and is valued at $47.6 billion.

This growth will be driven in large part by generative AI, with IDC projections suggesting that spending on generative AI will outpace the rest of the AI market more than threefold, moving past the $30 billion mark by 2027. Banking, retail, and software and information services are cited as the top three spenders driving this growth, collectively constituting nearly a third of the market.

Digital Euro
European spend on generative AI will outpace the rest of the AI market threefold over coming years. (Image by Shutterstock/peterschreiber.media)

Software emerges as the dominant technology segment in the report, its market value now higher than hardware and services combines. This dominance is anticipated to persist and even accelerate during the forecast period, fuelled by escalating demand for AI applications and platforms – and a further movement away from hardware towards cloud-based SaaS solutions.

AI integration the new normal

“Artificial Intelligence, as well as generative AI applications, should become fully integrated into the business, accompanied by responsible use,” said Carla La Croce, research manager, customer insights and analysis, IDC.

“Realising the full potential of AI and generative AI requires time. Although it is clear what benefits AI and GenAI solutions potential bring to companies’ internal organisation and processes, effectively realizing these benefits requires long-term planning. This requires companies to have a flexible and adaptable business plan to integrate AI and GenAI in a broader forward-looking and responsible strategy.”.

The IDC EMEA Cross-Industry Acceleration Survey, published late last year, further underscores the widespread adoption of AI across various sectors. One in three companies either already employs AI solutions or plans to do so within the next 24 months. The impetus behind this adoption lies in the optimisation of business processes with a keen eye on enhancing customer experiences and employee productivity. However, integration challenges and ethical considerations remain significant hurdles.

Earlier this year, a report commissioned by AWS, found a third of European businesses have adopted AI, a 32% year-on-year growth rate. If maintained, reported Unlocking Europe’s AI Potential in the Digital Decade, this could contribute an additional €600 billion in gross value added to the European economy by 2030.

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A cause for optimism?

Amid a sluggish wider economy, Europe’s AI sector continues to offer reasons for optimism among investors. IT and software was the most represented sector in the latest FT-Statista ranking of Europe’s 1,000 fastest-growing companies, rising from 176 in 2023 to 189 this year. AI is cited as the major driver of such growth. “We’re seeing a lot of companies being created, thanks to everything that’s happening in AI, with products that couldn’t have existed three or four years ago,” Luciana Lixandru, a partner at US venture capital giant Sequoia Capital, told the Financial Times.

Compared to the US or China, however, the industry remains in its relative industry. Following the passing of the AI Act by the European Parliament earlier this month, for example, it was suggested that “the EU now has more AI regulations than meaningful AI companies”. Questions remain regarding the extent to which such laws might stifle growth, but a significant rise in AI spend by European enterprises both within and beyond the tech sector, does not seem in doubt.

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