The competitive landscape of artificial intelligence (AI) indicates that the United States currently outpaces Europe in the development of major AI models. However, the application layer presents a different narrative, showcasing emerging leaders such as Lovable, a startup focused on vibe coding, and Synthesia, which specializes in AI-generated video for enterprises. This insight comes from Accel's 2025 Globalscape report that examines the AI and cloud industry.
The report highlights that European and Israeli AI and cloud applications have raised 66 cents for every dollar generated by their U.S. counterparts as of 2025. Accel partner Philippe Botteri emphasizes a significant change indicating that ten years ago, Europe represented only one-tenth of the U.S. market. He credits an evolving ecosystem of skilled founders and investors for this growth in Europe, suggesting they understand how to develop top-tier software companies effectively.
Notably, European and Israeli founders are increasingly recognized for more than just providing support to large tech AI laboratories. Jonathan Userovici, a general partner at Headline based in Paris, mentioned that in various sectors like legal, healthcare, manufacturing, and marketing, entrepreneurs are merging exceptional technical capabilities with profound market insights.
This observation is echoed in the AI Europe 100 report, which identifies rising AI-native application startups across Europe, highlighting their potential to become market leaders. Accel also notes an unprecedented growth rate in AI applications, with some achieving $100 million in annual recurring revenue within just a few years, a milestone that typically took decades in the past.
Botteri remarks on the remarkable efficiency with which these new AI-native applications are expanding, with revenue per employee reaching record highs for software companies. Despite the robust growth of new players, established cloud software companies remain resilient, as illustrated by a 25% year-over-year increase detailed in Accel’s Public Cloud Index. Many of these established firms are enhancing their products with AI capabilities, highlighting an evolving market.
While Europe has aspirations for foundational AI models like Mistral AI, the future remains uncertain for these companies as the landscape for European model developers appears less favorable. Botteri believes there is still potential for smaller models to thrive but suggests the environment is not abundant in opportunities.
On the other hand, venture capitalists are fiercely competing for investments in the AI application layer. Although questions about the long-term defensibility of these products persist, Botteri argues that successful product-centric offerings can achieve rapid market adoption, preserving a level of defensibility.
Furthermore, Lotan Levkowitz from Grove Ventures points out that while the current focus is largely on AI models, computational power, and applications, the importance of data is frequently overlooked. He asserts that companies emphasizing proprietary data and developing data-driven strategies could be significantly profitable in the AI landscape.