The European Union’s latest semiconductor strategy revision, dubbed Chips Act 2.0, seeks to address a critical imbalance in Europe’s technological sovereignty by fostering stronger domestic demand alongside production expansion. However, this effort is complicated by Europe’s heavy dependence on US-designed chips and Asian manufacturing, especially in the rapidly growing artificial intelligence (AI) sector.
What Happened
Building on its original 2023 Chips Act, which aimed to increase Europe’s global semiconductor production share to 20% by 2030 but is now projected to reach only about 11.7%, the European Commission is preparing a substantial overhaul known as Chips Act 2.0. This updated policy framework introduces new demand-side measures such as public procurement incentives, demand accelerators, and closer coordination between chip manufacturers and industrial users. These changes reflect recognition that prior policies overly focused on supply without adequately stimulating demand, creating a bottleneck in establishing a robust semiconductor ecosystem within the EU.
This policy update occurs amidst the EU’s ambitious AI infrastructure expansion, including plans for 19 AI factories, up to five AI gigafactories, and tripling data center capacity over the next five to seven years under the Cloud and AI Development Act. Such infrastructure depends heavily on advanced AI processors, nearly all sourced from the US-based Nvidia, which dominates the GPU segment with its CUDA software technology underpinning European AI applications.
Key Facts
The EU produces less than 10% of the world’s semiconductors and is substantially reliant on semiconductor supply chains concentrated in the United States (chip design and intellectual property) and Asia, particularly Taiwan and South Korea (advanced manufacturing), with China controlling important materials and industrial inputs. The European Court of Auditors warns the 20% production target is unlikely to be met, with projections closer to 11.7% market share by 2030.
Current AI infrastructure projects reveal dependency on Nvidia hardware, including deployments of thousands of Nvidia GPUs in data centers near Paris, Munich, and Portugal. Europe holds only 4% of the global semiconductor packaging, assembly, and testing market, with no major companies in this segment headquartered within the bloc.
Europe retains competitive edges in semiconductor research and specialized manufacturing, highlighted by firms like Dutch company ASML, a global leader in extreme ultraviolet lithography equipment, and Belgium’s imec research center. However, these strengths fall short of enabling the EU to achieve full semiconductor value chain autonomy.
What This Means
The EU’s strategy highlights the difficulty of reconciling ambitions for technological sovereignty with entrenched global supply chain realities. As Europe’s AI infrastructure grows, the region risks deepening reliance on a small number of foreign suppliers, particularly Nvidia, which may create a “dependency trap” that undermines digital sovereignty goals. This paradox challenges the assumption that expanding domestic production alone will secure strategic autonomy.
Instead, Europe’s semiconductor policy must focus on reducing vulnerabilities by diversifying sources and strengthening critical segments rather than pursuing impractical full self-sufficiency. The Chips Act 2.0’s emphasis on demand stimulation signals a more balanced approach but will face an uphill battle in pivoting over-reliance on US chip design and Asian manufacturing networks to a resilient, coordinated ecosystem.
For European AI developers, data centers, and technology industries, this means continued exposure to geopolitical risks linked to supply disruptions or political leverage exercised by dominant non-European suppliers. The policy will also influence how industrial users engage with chip producers, possibly fostering greater regional investment if the demand-side incentives succeed.
Background
The original Chips Act, adopted in 2023, reflected the EU’s push to bolster semiconductor production amid global chip shortages and supply chain fragility. It set ambitious quantitative production targets but did not fully address the demand coordination necessary for fostering a sustainable domestic chip ecosystem. The European Court of Auditors and other oversight bodies have since flagged these shortfalls.
Meanwhile, the global semiconductor supply chain is intensely concentrated: US firms lead in design and intellectual property, Asian companies dominate fabrication, and materials sourcing is controlled mainly by China. Europe’s strengths lie chiefly in semiconductor equipment manufacturing and research capabilities, which alone do not guarantee supply chain autonomy.
Analysis
Experts like Toni Roldán-Monés, assistant professor of public policy at IE University, emphasize that Europe’s greatest vulnerability in semiconductor strategy is overdependence on foreign partners who might leverage global supply chains geopolitically. He advocates for a balanced approach—building domestic capabilities and diversifying suppliers to avoid single points of failure without pursuing full isolation from the international semiconductor market.
Similarly, Claire Godfrey from the Balanced Economy Project warns Chips Act 2.0 must address the twin exposures of reliance on Asian manufacturing and on US-controlled AI and cloud infrastructures, especially given Nvidia’s dominance in AI chips and software in Europe. Without tackling both issues, policy efforts risk only shifting dependencies rather than reducing them.
What Comes Next
The European Commission plans to introduce Chips Act 2.0 reforms imminently, with specific demand-side measures expected to roll out alongside efforts to enhance coordination between industrial AI users and chip producers. The timeline and precise regulatory details remain pending official publication but are closely watched by industry stakeholders seeking clarity on upcoming compliance and investment incentives.
Sources
This article is based on reporting and publicly available information from the following sources:
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