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European AI to Reach $47.6 Billion in 2024

The European Artificial Intelligence (AI) and Generative AI (GenAI) market will reach $47.6 billion in 2024 and record a compound annual growth rate (CAGR) of 33.7 percent over the 2022-2027 forecast period.

Europe represents around one-fifth of the global AI market according to the latest worldwide market study by International Data Corporation (IDC). While the share of GenAI reached only 9.6 percent of the total European AI market in 2023, it is increasing rapidly.

Investment in GenAI will grow more than three times as fast as spending on the rest of the artificial intelligence market. As a result, GenAI will be more than a quarter of the European AI market in 2027.

European AI Market Development

Software will be the largest technology segment in 2024, with a market value higher than hardware and services combined. Furthermore, software is expected to have the fastest growth during 2022-2027, driven by demand for AI applications and platforms.

The share of hardware technologies will decrease during the period in favor of software technologies, excluding the software and information services industry, in which the hardware component remains the largest, due to specific AI infrastructure provisioning use cases that characterize this industry.

According to an IDC survey, one out of three European companies are already using or are planning to use AI solutions in the following 24 months.

The maturity of adoption results from a need to optimize business processes with a clear focus on customers and employees. Indeed, AI solutions proved to be successful in boosting customer experience and improving employee productivity.

On the other hand, research indicates adoption challenges are primarily related to the broad integration of AI into the organization and its ethical use.

"Artificial Intelligence, as well as generative AI applications, should become fully integrated into the business, accompanied by responsible use," said Carla La Croce, research manager at IDC.

Realizing the full potential of AI and generative AI requires time. Although it is clear what benefits AI and GenAI solutions potentially bring to companies’ internal organizations and processes, effectively realizing these benefits requires long-term planning. 

According to the IDC assessment, companies must have a flexible and adaptable business plan to integrate AI and GenAI in a broader forward-looking, and responsible strategy.

Banking, retail, and software and information services are the top three industries in terms of spending, representing nearly a third of the European AI market.

In the financial sector, notable uses of AI solutions span the cybersecurity risk areas, including augmented fraud analysis and investigation and threat intelligence and prevention systems, while customer support use cases include program advisors and recommendation systems. 

Moreover, financial institutions are increasingly integrating GenAI into their banking services -- for example, for fraud detection or to generate accurate predictions and scenarios.

Evolving customer expectations and needs, fierce competition, and the quest for enhanced online customer experience are all factors driving retailers to experiment with emerging technologies.

The retail industry is taking advantage of the opportunities created by AI. With uses such as augmented customer service agents or expert shopping advisors and product recommendations, customer experience and satisfaction are always at the center of retail objectives, where AI can become a transformative force.

In addition, GenAI is gaining traction as many retailers expect to explore large language models (LLMs) and foundation models (FMs) applications in marketing, sales, and customer engagement.

Outlook for European AI Applications Growth

Finally, the software and information services industry, which represents software vendors and information and data services companies, is characterized by spending on AI by providing AI infrastructure.

These companies grant users access to this infrastructure, providing resources needed for computing and storage for AI systems development or the provision of AI services to end customers. AI spending in this industry will be driven by hardware components, which represent the largest tech component of the overall AI market.

Nevertheless, software's market share will increase in the long term, growing faster than any other technology component, as software providers will allow end users also to leverage their Platform as a Service (PaaS) and Software as a Service (SaaS) solutions.

That said, I believe some technology leaders will use GenAI to accelerate their software development projects. Meanwhile, others will apply one or more of the multitude of GenAI use cases that have proven to be effective.

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