It’s become the latest European gold rush – digging up public funds to build AI Factories and Gigafactories. These data centers will be packed with high-performance servers and AI chips, cooled by industrial water systems, and powered by nearby energy grids.
Although promoters tout the AI Factories as the continent’s best hope of catching up in the crucial AI race, the history of grand European state-supported industrial schemes raises doubts. Galileo, the satellite navigation system, competitor to America’s GPS, came late and over cost, and Gaia-X, the bid for a European cloud, has struggled to reduce the stranglehold of US cloud giants.
For critics, and they are numerous, the AI Factories fail to address Europe’s main AI weaknesses: high energy costs, stringent copyright rules, and tough AI regulation. They increase potential supply but fail to stimulate what’s needed most: demand. Electricity powers the chips and data centers needed to run AI models, and it costs up to three times US levels in Europe. Access to high-quality data is crucial to building AI models. In the US, fair use allows access to a vast trove. In Europe, rightsholders demand stiff payments, raising the potential cost of data.
Europe’s AI Act also generates pushback. While Brussels policymakers are proud of passing the world’s first binding legislation to mitigate the potential dangers of the new technology, AI developers call the effort premature — and dangerous. The new Act generates uncertainty. No one is quite sure which applications will be dubbed “high risk” and subject to extensive liability risks. A movement is growing to “pause” implementation for at least a few years, but no decision has been made so far.
Despite the doubts, governments and companies around the continent are mobilizing to bid for the €20 billion in EU funds. The AI Factories target startups, researchers, and companies to tap into the three ingredients needed to build advanced AI models – computing power, data, and skilled talent.
Since European universities struggle to pay for AI, project supporters point to the potential tie-in with research institutes. Planned AI Factories will be clustered around Europe’s top supercomputing hubs – LUMI in Finland, BSC in Barcelona, Cineca in Bologna, and Jülich in Germany – all linked through ultra-fast networks.
It’s no surprise that companies and national governments are rushing to cash in. Who wouldn’t take free government funding to buy chips and servers and build data centers? The European Commission reported that it received a total of 76 expressions of interest across 60 different sites in 17 of the 27 EU member states.
European leaders trumpet AI Factories as symbols of digital sovereignty. In announcing the project, European Commission President Ursula von der Leyen calls them proof of the continent’s determination to “become a leader in AI innovation.” Between 2018 and the third quarter of 2023, investors poured almost €32.5 billion into EU AI companies, compared with more than €120 billion in US AI companies. Brussels is betting AI Factories can close this funding gap.
But the critics remain skeptical. The process of picking AI Factory locations has spawned bitter political infighting. In Central and Eastern Europe, the Poland-based AI Chamber and other groups urged governments to unite behind a single regional project rather than split resources.
The only AI chips on the market are American-made from Nvidia and AMD. European-owned data centers struggle to supply the cutting-edge developer tools offered by American hyperscalers. Interoperability issues undermine efficiency. Each AI factory could come with its own software stack, making it difficult to move workloads between them.
“Commercial applications require flexibility that cloud infrastructure already offers,” says Alexandru Voica, a public policy specialist at Synthesia, a UK-based AI video generator startup. “With these supercomputers, you hit the ceiling quickly, and you still end up relying on US cloud providers.”
Europe’s AI factory initiative pales in comparison with the amounts being poured into AI infrastructure by China and the US. Although €20 billion sounds like a lot of money, US company OpenAI has mobilized half a trillion dollars over the next four years for its Stargate project.
Europe might do better by focusing on increasing demand for AI products. Only 13% of European companies say AI is core to their business, versus 49% in the US and 83% in China. If more Europeans used AI, then European companies could spring up naturally to satisfy it.
The European Commission launched an AI Apply Strategy this month “to speed up the use of AI in key industries and the public sector.” It plans to provide a budget of €3.5 billion a year. That may be more successful than pouring more than five times the funds into AI gigafactories.
Dr. Anda Bologa is a senior researcher in the Tech Policy Program at the Center for European Policy Analysis (CEPA).
Bandwidth is CEPA’s online journal dedicated to advancing transatlantic cooperation on tech policy. All opinions expressed on Bandwidth are those of the author alone and may not represent those of the institutions they represent or the Center for European Policy Analysis. CEPA maintains a strict intellectual independence policy across all its projects and publications.
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