Europe lags the United States in AI investment, but could still capture significant productivity gains if adoption accelerates, according to a new UBS report. The bank estimates EU AI investment reached €337 billion in 2024, equivalent to 1.9% of GDP, with the euro area contributing €278 billion.

Skills represent the largest share of European AI investment at 55%, followed by data and equipment (29%), research and development (9%), and other intellectual property (7%). Germany, France, and Italy lead in absolute terms, though smaller economies like Lithuania, Estonia, and Greece lead when measured as a share of GDP. Despite the investment gap, UBS projects Europe could see productivity gains of 0.8% to 1.1% over five years if AI adoption is effective.

However, the bank warns that Europe's comprehensive AI regulatory framework, including the EU AI Act, could dampen adoption and reduce potential gains. In an illustrative scenario, stricter regulation could lower AI-related productivity gains by more than 30%. In equity markets, UBS notes investors have favored AI enablers like chip equipment suppliers while penalizing companies seen at risk of disruption. The bank argues the next phase may focus on adopters in banking, retail, logistics, and healthcare that can leverage AI to expand margins and improve operational efficiency.