Europe’s technology sector faces a critical moment as it seeks to remain competitive on the global stage, according to Atomico’s latest State of European Tech 2025 report. The venture capital firm warned that sustained investment in artificial intelligence (AI), climate technology, and defence will shape the continent’s technological progress over the next decade.
The report notes that Europe has strong talent and innovation, but struggles with “alignment between ambition and commitment.” It calls on the continent to aim for its first trillion-euro technology company while retaining autonomy in strategic industries. “Sovereignty in technology isn’t about protectionism, it’s about agency and choice – building the capability, confidence and capital to shape the future while acting independently,” said Tom Wehmeier, partner and head of intelligence at Atomico.
Atomico’s analysis draws on public data and a survey of around 2,500 technology industry participants to assess investment trends and innovation across the region. AI funding has surged, capturing 31 percent of all investment in 2025. French AI company Mistral AI raised $2 billion (€1.73 billion) this year, the largest European investment, followed by $1.1 billion (€952 million) for data centre start-up Nscale. Swedish AI start-up Lovable achieved a $1 billion (€865 million) valuation within six months of launching. Other companies positioned for global leadership include AI video platform Synthesia and workflow automation firm n8n.
The defence technology sector is also expanding rapidly. Investments in defence tech rose to $1.6 billion (€1.38 billion) in 2025, up from $1 billion (€865 million) in 2024, marking the strongest decade of growth in the sector. One-third of this funding went to German company Helsing, which develops AI-powered drones and submarines. Other major recipients included Isar Aerospace, Cambridge Aerospace, Quantum Systems, and Roark Aerospace. Despite strong growth, Atomico notes that Europe’s defence tech investments are spread across more companies than in the United States, limiting scale.
The report stresses that Europe must continue attracting top AI talent, a workforce that has grown 22 percent annually since 2016. It also calls for research funding to match U.S. levels in software and AI, rather than being concentrated in industrial and manufacturing sectors. Increasing computing power is another priority, as Europe holds only a fraction of the world’s graphics processing units, with the U.S. and China controlling 87 percent.
“Europe’s mission has never been stronger. The talent, ambition, and ideas are all in place. What’s missing are the conditions to match that potential: simpler regulation, more patient capital, and public commitment,” said Sarah Guemouri, principal at Atomico. She described the report as a blueprint for action, emphasizing that the next decade will determine whether Europe leads the next era of technology or allows others to define it.
