Could European institutions withstand bursting of AI bubble?

AI investment has entered what many are calling its euphoric phase. Analysts predict that global spending will soar to $1.5 trillion by 2025, as Big Tech channels unprecedented amounts into chips, data centers, and AI development. With valuations now far outpacing earnings, a market correction seems inevitable. The real question, however, is how prepared Europe will be when the bubble finally bursts.

The current boom makes the dot-com bubble look almost quaint, argues an article published by Euractiv. At its height in 2000, global IT spending stood at around $1 trillion in today’s money — significantly less than the $1.5 trillion projected for AI just two decades later. While the dot-com era focused mainly on software, today’s AI surge spans semiconductors, logistics, medicine, energy, and even defence.

Just as the internet age was born from the dot-com boom, today’s AI frenzy is building valuable infrastructure. Yet, as the article recalls, history shows that not all capital is “smart money.”

The same enthusiasm fuelling innovation can also inflate a fragile financial bubble. The European Central Bank has already cautioned that concentrated bets on AI stocks are draining liquidity buffers, warning that “when expectations outrun delivery, gravity returns with a vengeance.”

If valuations collapse, the fallout will not remain confined to Silicon Valley. Europe’s tech sector is deeply intertwined with global markets, and both pension and sovereign wealth funds hold significant shares in AI-heavy portfolios. A major sell-off could quickly tighten credit for high-growth European ventures.

According to the author, Europe’s structural weakness is compounding the challenge : unlike the United States and China, it lacks major homegrown AI giants. Most European startups rely heavily on foreign capital and imported infrastructure such as cloud services, GPUs, and model pipelines — all controlled abroad. A global investor retreat could therefore deal Europe a double blow: evaporating funding and increased dependency on non-European providers.

For this reason, the article contends, Europe should not focus on preventing the bubble’s burst — an impossible task — but on absorbing the shock and positioning itself to emerge stronger:

First, Europe must use its regulatory power to stabilize expectations. The EU’s upcoming AI Act can act as a “credibility anchor” for global markets. By setting clear and enforceable standards, the EU can reduce the uncertainty that fuels speculative bubbles.

Investors need confidence about which AI applications are both legally and ethically sustainable. Rather than hindering growth, strong governance could become “Europe’s comparative advantage,” ensuring that the next AI wave generates lasting value instead of temporary profits.

Second, the EU and its member states should prepare counter-cyclical funding mechanisms. When private capital withdraws, public institutions must step in to sustain key AI ventures and infrastructure — including research centers, open-source developers, and trusted data networks that form the backbone of Europe’s ecosystem.

Third, Europe must manage its data centers and energy capacity with flexibility. The current boom has led to massive investment in hardware and energy-hungry systems that could soon sit idle if demand crashes. Repurposing this infrastructure for universities, startups, SMEs, and public agencies could sustain progress in fields like health, climate, and logistics.

Finally, Europe should build on its strengths — human capital, ethics, and public trust. When speculative projects collapse, the public will inevitably question whether AI was worth the cost. Europe’s long tradition of embedding democratic values into technological innovation can help rebuild confidence and demonstrate that AI’s purpose is to augment, not replace, human labour.

“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,” the author concludes.

By Nazrin Sadigova