Key Highlights

  • US Business Investment is projected to rise 40% in real terms from 2021 through the end of next year.
  • The euro area's business investment is expected to grow just 12% over the same period, with German investment nearly stagnant.
  • Google, Meta, Microsoft, and Amazon are on track to invest more than $725 billion in 2026 alone on AI infrastructure.
  • US GDP per hour worked rose $14 between 2018 and 2025, compared with just $2 in Europe over the same period.

AI Spending Drives a Widening Transatlantic Investment Gap

Business investment in the US is on track to rise more than three times faster than in Europe in the six years since the pandemic, according to forecasts highlighting the AI-driven divide opening between the two economies. Corporate spending on new equipment and facilities in the US is projected to increase 40% in real terms between 2021 and the end of next year, according to Oxford Economics, which identified surging outlays on AI equipment as a key driver. That compares with a real-terms increase of just 12% in the euro area, while German business investment is expected to have nearly stagnated over the same period.

Europe was already lagging behind the US's information technology investment even before the rise of large language models that began with ChatGPT's late-2022 launch. The gap also raises questions for the US itself, given its heavy reliance on continued AI spending: Google, Meta, Microsoft, and Amazon are on track to invest more than $725 billion in 2026 alone as they race to build AI infrastructure, even as the Bank for International Settlements has warned of rising risk of a costly "investment bust" if AI returns Fail to meet expectations.

Europe Has Made Little Progress Since Draghi's Warning

The Oxford Economics forecasts show Europe has made little, if any, progress closing its investment gap since former European Central Bank president Mario Draghi published a landmark competitiveness report in September 2024, which warned that digitalization, decarbonization, and higher defense spending required an unprecedented investment surge to levels last seen in the 1960s and 1970s. One Oxford Economics economist attributed the divergence to the US being a more dynamic, entrepreneurial economy with greater rewards on offer in the AI race, describing Europe's pace as "much slower."

Productivity Gap Compounds the Investment Divide

Europe also faces a growing productivity gap with the US. According to one analysis presented to ECB policymakers, GDP per hour worked increased by $14 in the US between 2018 and 2025, compared with just $2 in Europe, with the outperformance extending beyond the digital sector into areas including wholesale, retail, and professional services. However, the same analyst argued that higher investment alone was unlikely to resolve Europe's productivity challenges, pointing instead to a deeper problem in which innovation is not properly connected to adoption by businesses across different sectors.

Some observers have pointed to Europe's regulatory approach as a contributing factor, noting the region's 2024 AI Act became the first comprehensive legal framework governing the technology, with critics warning that stringent rules risk discouraging investment. One economist said Europe had "missed out on the latest wave of cutting-edge technology," while another suggested the investment gap could partly prove temporary as AI spending cycles historically have not continued indefinitely.

Conclusion

The scale of the AI-driven investment divergence between the US and Europe underscores the high stakes both economies face, with the US wagering heavily on continued AI returns even as some observers warn of an eventual bust, while Europe risks a lasting erosion in relative living standards if it fails to close the gap. Whether Europe's investment shortfall proves temporary, as some economists suggest, or reflects a deeper structural disadvantage in innovation adoption will likely become clearer as AI investment cycles mature in both regions over the coming years.