AI investment has entered its euphoria stage. Analysts forecast global spending will reach $1.5 trillion in 2025, with Big Tech pouring unprecedented sums into chips and data centres. With valuations far above earnings, a correction is inevitable. The question is how prepared Europe will be when the bubble bursts.
What’s unfolding now makes the dot-com bubble look almost quaint. At its 2000 peak, global IT spending was around $1 trillion in today’s money, compared with $1.5 trillion projected for AI in 2025. The dot-com boom was mostly software, but today’s surge spans semiconductors, data centres, logistics, medicine, energy, and defence.
Speculative finance now underpins the infrastructure of the digital world. The data centres, chip foundries, and cloud platforms that power AI are financed through leveraged markets and venture funding that expand and contract with speculation. When that flow tightens, the effects ripple from valuations to the real economy, testing whether Europe’s digital foundations can keep advancing when capital contracts.
Just as the dot-com boom built the internet we still rely on, the current AI surge is building useful infrastructure. But history shows not all capital is smart. The same fervour driving AI innovation also inflates a fragile bubble. The European Central Bank has warned that concentrated bets on AI stocks are depleting liquidity buffers. When expectations outrun delivery, gravity returns with a vengeance.
If valuations collapse, the damage will not stop at Silicon Valley. Europe’s tech ecosystem is tightly linked to global markets while pension and sovereign funds also hold AI-heavy equities. A sell-off could tighten credit for high-growth ventures.
Unlike the US and China, Europe lacks major home-grown AI titans. Most of its startups depend on outside capital and imported infrastructure such as cloud platforms, GPUs, and model pipelines, which are controlled elsewhere. If global investors retreat after a market correction, European firms could face a double shock of evaporating funding and heightened dependence on foreign providers. The result would be a deepening of Europe’s technological dependency just when strategic autonomy demands the opposite.
This is why Europe must think ahead, not about preventing the bubble from bursting, but about absorbing the shock and emerging stronger from it.
Firstly, Europe should use its regulatory leverage to stabilise expectations. The EU AI Act can serve as a credibility anchor for global markets. Clear, enforceable standards can reduce the uncertainty that amplifies speculative bubbles. Investors need to know which AI applications are legally and ethically viable. Far from being a brake on growth, strong governance can become Europe’s comparative advantage, ensuring the next AI wave builds real value, not just paper profits.
Secondly, the EU and its member states must prepare counter-cyclical funding tools. When private capital flees, public institutions should back critical AI ventures and infrastructure to preserve the connective tissue of Europe’s ecosystem: research centres, open-source model developers, and trusted data networks.
Thirdly, Europe must be nimble in the management of its data centres and energy capacity. The bubble’s expansion has already triggered overinvestment in hardware and power-hungry infrastructure. If demand collapses, these could become stranded assets. This idle computing capacity can serve universities, startups, SMEs, and public agencies developing applied AI in health, climate, and logistics.
Europe’s financial supervisors should stress-test AI-exposed portfolios. The ECB’s 2024 warning about AI stock concentration should be followed by coordinated risk assessments across the bloc. The lesson from 2008 remains that transparency is the best vaccine against contagion.
Finally, Europe should lean into its strengths in human capital, ethics, and public trust. When speculative AI projects implode, the public will question whether the technology was worth it. Europe’s tradition of embedding democratic values into innovation can rebuild trust. It can also demonstrate that AI is about augmenting the workforce rather than replacing it.
If the AI bubble bursts, it will not end the AI era but merely its first act, which was driven by hype, fear of missing out, and cheap money. The next act will belong to those who invest wisely, regulate intelligently, and build enduring systems. Europe can lead that chapter if it treats the coming correction not as a crisis but as an inflection point.
When the speculative dust settles, what will matter most is who built foundations that last. The US may dominate in scale and China in speed, but Europe can lead in stability. If it anchors the AI economy in transparency and long-term resilience, Europe will emerge as the world’s trusted hub for responsible AI.
Chris Kremidas-Courtney is a Euractiv columnist and senior visiting fellow at the European Policy Centre, associate fellow at the Geneva Centre for Security Policy, and author of ‘The Rest of Your Life: Five Stories of Your Future.’
