What's Happening?
Accel's 2025 Globalscape report reveals that the United States is leading in the development of large AI models, while Europe and Israel are making significant strides in the AI application layer. The
report notes that cloud and AI applications in Europe and Israel have attracted 66% as much private funding as their American counterparts in 2025. This marks a substantial increase from a decade ago when Europe was only one-tenth of the U.S. in terms of funding. Accel partner Philippe Botteri attributes this growth to the development of a robust ecosystem of founders and investors in Europe who understand how to build successful software companies. The report also highlights the rapid growth of AI-native applications, which have reached $100 million in annual recurring revenue in a few years, a feat that previously took decades.
Why It's Important?
The findings underscore the competitive landscape in the AI sector, with the U.S. maintaining a lead in foundational AI models, while Europe and Israel are emerging as strong contenders in the application layer. This shift is significant as it suggests a diversification in the global AI market, with different regions specializing in various aspects of AI technology. The rapid growth of AI-native applications indicates a transformative impact on industries such as healthcare, manufacturing, and marketing, where these applications are being integrated. The increased efficiency and revenue generation per head count in these companies highlight the potential for substantial economic benefits and innovation in the software industry.
What's Next?
The report suggests that existing cloud software companies will continue to evolve by adding AI capabilities to their products, maintaining their relevance in the market. Accel's Public Cloud Index shows a 25% year-over-year increase, indicating ongoing growth in this sector. Additionally, venture capitalists are actively seeking investment opportunities in the AI application layer, despite concerns about defensibility. The focus on proprietary data and data flywheels is expected to become increasingly lucrative, as companies leverage unique data sets to enhance their AI offerings.
Beyond the Headlines
The report hints at a potential undervaluation of data-centric companies, suggesting that the market may shift towards recognizing the value of proprietary data in AI development. This could lead to increased investment in companies that focus on data aggregation and analysis, further diversifying the AI landscape. The emphasis on data could also drive advancements in AI accuracy and efficiency, impacting sectors reliant on data-driven insights.
