Europe's AI ambitions rest on somebody else's supply chain

EU firms capture less than 10% of the bloc's datacenter chips, server assembly, and cloud infrastructure markets

Europe is one of the world's largest markets for AI datacenter infrastructure, but its own local companies capture only a fraction of the value, because overseas suppliers dominate chips, servers, and cloud infrastructure.

According to the Global Electronics Association (GEA), EU-headquartered companies account for only six percent of the bloc's datacenter semiconductor market, seven percent of server manufacturing and assembly, and eight percent of cloud infrastructure.

Its report, "From Chips to Systems: Building an End-to-End EU Strategy for Data Centre, Cloud Infrastructure and AI," says that Europe's Cloud and AI Development Act (CADA) aims to at least triple the bloc's datacenter capacity within five to seven years.

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The association argues that Europe needs policies to develop its own industrial ecosystem and capture more of the "unprecedented demand for servers, electronic systems and semiconductor components" CADA is expected to stimulate.

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Europe has fallen behind other regions in much of the electronics supply chain. Taiwan dominates contract chip manufacturing and produces most of the world's leading-edge processors, many of them designed by American companies, while South Korean and US suppliers dominate the memory market.

Most major server makers are American, with China's Lenovo a notable exception. US companies also dominate networking and storage, leaving Europe with few large suppliers of its own.

The report recommends that the EU pursue an end-to-end strategy for the datacenter supply chain, using European demand to encourage private investment while enticing global technology and manufacturing companies to expand production within the bloc.

Its case rests partly on the claim that servers, driven by AI processing requirements, have become the primary growth driver of the entire electronics industry since 2024, overtaking other segments. It points to forecasts that expect servers to become the largest electronics segment by 2030, ahead of smartphones or automotive electronics.

The report also identifies datacenter, cloud, and AI infrastructure as the most strategically important market for EU technological sovereignty. Server farms constitute the critical infrastructure on which a large number of essential services now depend, and the cloud services that run on them are now integral to the design, manufacture, and operation of many physical goods.

GEA argues that supporting individual parts of the supply chain in isolation will not create a competitive European industry. It points to the Chips Act 2.0 and CADA as steps in the right direction, but says that other industrial policy instruments will need to match them.

"For the first time, printed circuit boards, electronic manufacturing services, advanced packaging, and substrates sit alongside semiconductor fabrication as explicit targets of European industrial strategy," it says.

The report acknowledges that Europe cannot realistically build this supply chain using EU-headquartered companies alone. It says policymakers should use the "attractiveness and growth of the EU market to encourage global leaders to expand their manufacturing footprint in Europe."

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That could involve partnerships with European technology companies and research organizations, spreading manufacturing expertise through the region's electronics industry.

The proposal echoes the Trump administration's push to rebuild American manufacturing, although it relies more on incentives than on tariffs or threats to exclude foreign products unless their manufacturers establish US production.

Nevertheless, the GEA says that the European objective should be to progressively anchor a greater share of the end-to-end value chain within Europe. Whether EU members have the collective will to do this is another question, as is whether it is possible to reverse the continent's deep dependence on overseas technology. ®