Innovation and AI investment: where Europe and its SMEs stand

Research and AI investment is concentrated in the US, Asia and large companies. In Europe, small firms use AI at a third of the rate of large ones.

Recent figures give a clear picture of where innovation money goes. The EU spent €403.1 billion on research and development in 2024, 2.2% of its GDP, according to Eurostat. That is below the OECD average and well behind South Korea and Israel. Against the United States, the gap sits mainly in companies: in 2021, EU firms spent around €270 billion less on R&D than their US counterparts, as Mario Draghi underlined when presenting his report on European competitiveness.

Business R&D shows the same pattern. The world’s top 2,000 R&D investors spent about €1,446 billion in 2024. EU-based companies accounted for €233.8 billion, roughly 16% of the total, and increased their R&D by 2.9%, against 7.8% for US companies, according to the 2025 EU Industrial R&D Investment Scoreboard.

In AI the distance is wider still. The Stanford AI Index 2026 reports $285.9 billion of private AI investment in the United States in 2025, against $12.4 billion in China, while noting that state-backed funding in China is not fully captured by private investment data.

Europe is moving in the right direction. The European Innovation Scoreboard 2026 shows the EU’s innovation performance up 11.6 percentage points since 2019, with Sweden, Denmark and the Netherlands leading. Globally, South Korea is the leading innovation performer and China is improving fastest.

Why it matters for SMEs

SMEs make up 99% of EU businesses, yet innovation and AI remain concentrated in larger firms. Between 2020 and 2022, 47% of EU enterprises with 10 to 49 employees were innovation-active, against 78% of those with 250 or more. In 2025, 17% of small enterprises used AI, compared with 55% of large ones.

The EIB Investment Survey adds a useful nuance. EU and US firms use generative AI at similar rates, 37% and 36%, but 81% of US firms that use AI apply it in at least two internal processes, against 55% in the EU. Among EU firms, generative AI use reaches 28% in SMEs and 44% in large companies, and 32% of EU firms report innovation activities, against 53% in the United States.

What to do about it

For a smaller organisation, the gap is less about access to technology than about depth of use. Three steps make the difference: apply AI to more than one process and connect it to the core of the business; combine your own investment with public funding to reduce risk, from regional programmes to Horizon Europe; and bring in specialist skills when you need them, rather than building every capability in-house.

How NOCTRAM can help

We help SMEs find the right funding, prioritise the processes where AI pays back first and assemble the specialists to deliver it.