Europe’s Semiconductor Industry: Can It Compete with the US and China?
This analysis forms part of our coverage of European AI and European Business News, and is updated alongside daily reporting in the European Business Magazine newsroom.
Semiconductors have become the strategic heart of the modern economy. Every AI model, electric vehicle, weapons system and data centre depends on advanced chips. For Europe, the question is no longer whether semiconductors matter — it is whether the continent can avoid becoming dangerously dependent on foreign suppliers.
While the United States and China are pouring hundreds of billions into chipmaking, Europe is trying to carve out a third path: combining world-class engineering with state support and open markets.
Why chips now define economic power
The semiconductor industry sits at the intersection of technology, geopolitics and industrial policy. Chips determine who can build the fastest AI systems, the smartest factories and the most advanced defence equipment.
The explosion of artificial intelligence has made this even more acute. Training and running large models requires enormous amounts of computing power — and that power ultimately comes from silicon.
This is why semiconductors now underpin the race for European AI leadership.
Europe’s hidden strengths
Europe does not dominate chip manufacturing in the way Taiwan or South Korea does. But it plays a crucial role in the global semiconductor ecosystem.
European companies lead in specialised equipment, industrial chips and automotive semiconductors. From lithography machines to power-management chips, Europe supplies many of the tools that make the global chip industry work.
This industrial base gives Europe leverage — and a starting point for expansion.
The Chips Act and the return of industrial policy
In response to supply-chain shocks and geopolitical risk, Europe has launched a massive public-private push to expand domestic chip capacity. The EU’s Chips Act aims to double Europe’s share of global semiconductor production by the end of the decade.
Governments are offering subsidies, fast-tracked permits and infrastructure to attract fabrication plants and research facilities. This marks a decisive shift away from the hands-off economic model that dominated for decades.
It also places semiconductors at the heart of Europe’s broader industrial strategy.
The US and China are still far ahead
Despite these efforts, Europe faces formidable competition.
The United States dominates in design, software and leading-edge manufacturing. China, meanwhile, is investing heavily to reduce its reliance on foreign technology, building domestic chip champions at scale.
Europe risks being squeezed between these two giants unless it can move quickly and strategically.
This mirrors the wider challenge of maintaining economic sovereignty in a world of technological blocs — a theme explored in our analysis of who killed Europe’s single market dream.
Why investors are watching closely
Semiconductors have become one of the most attractive segments of European stocks. Chipmakers, equipment suppliers and materials companies are benefiting from unprecedented global demand.
At the same time, the revival of European markets and rising global dealmaking have made it easier for European chip firms to raise capital and pursue acquisitions.
AI, defence and energy are driving demand
Three forces are pushing Europe’s semiconductor industry forward.
First, AI requires massive computing power. Second, defence and aerospace programmes are demanding secure, domestic chip supplies. Third, the energy transition — from electric vehicles to smart grids — depends on advanced power electronics.
Together, these trends mean that chips are no longer just a tech story. They are an industrial and security imperative.
What must go right for Europe to win
For Europe to become a true semiconductor power, it must solve three problems.
It must build large-scale fabrication capacity. It must integrate its fragmented national policies into a coherent industrial strategy. And it must ensure access to cheap, reliable energy to support power-hungry fabs.
If it succeeds, Europe will secure not just technological independence but also a central role in the global AI economy.
If it fails, it will remain dependent on foreign supply chains — with all the economic and political risks that entails.
The bottom line
Semiconductors are now as strategically important as oil once was. Europe has the skills, the companies and the political will to compete — but time is not on its side.
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