European spending on artificial intelligence is forecast to reach $290 billion by 2029, according to a report by the International Data Corporation (IDC).

The forecast represents a compound annual growth rate of 33.7 per cent between 2025 and 2029, reflecting rapid expansion across the region.

Growth is expected to be driven by major investments from banking, retail, and software and information services, alongside accelerating adoption in healthcare.

Generative AI solutions are already widely deployed and are projected to account for nearly 54 per cent of the total market by the end of the forecast period.

The outlook for 2026 points to a continued transition from experimentation to strategic deployment of AI across European enterprises, despite broader economic pressures.

This shift is occurring even as companies navigate geopolitical tensions and ongoing supply chain disruptions, which have not slowed momentum.

In terms of market composition, software is expected to dominate, accounting for 58.5 per cent of total AI spending in 2026, making it the largest technology segment.

It is also the fastest-growing segment, with a projected 42.9 per cent growth rate over the 2025 to 2029 period.

Within industries, banking is set to remain the largest sector, representing around 12.5 per cent of the market in 2026.

At the same time, healthcare providers are forecast to be the fastest-growing segment, with a 39.7 per cent growth rate, driven by increasing use of AI in clinical operations.

“Despite geopolitical tensions and supply chain disruptions, the AI market remains dynamic and is rapidly transitioning from experimental to operational and strategic for enterprises,” said Carla La Croce, Research Manager for Data and Analytics at IDC.

“Organizations are no longer treating AI as a standalone tool — they are repositioning it as a strategic asset to transform their business models. The emergence of agentic AI tools has made this transformation more urgent and more profound than many anticipated,” she added.

The surge in spending is being fuelled by measurable returns in cost efficiency, customer experience, and risk management, prompting companies to reallocate budgets.

As a result, enterprises are moving from experimental pilot projects to mission-critical, multi-agent AI deployments across their operations.

Software is leading this expansion, with AI platforms growing at 52.5 per cent within the broader software category, driven by increasing use of agentic systems.

Looking ahead, the European AI market is expected to maintain strong double-digit growth through 2029, supported by platform expansion and cloud-native development.

Industry-specific AI integration is also becoming more prominent, embedding capabilities directly into core enterprise strategies and operations.

A key driver of this growth is agentic AI, which is emerging as a central catalyst for innovation and deployment at scale.

However, several risks could shape the market, including regulatory fragmentation linked to the EU AI Act, which may affect investment patterns across member states.

Persistent shortages of skilled AI talent and increasing pressure to optimise cloud costs are also expected to influence adoption.

These challenges are likely to drive additional demand for AI governance, compliance, and assurance services, particularly in regulated industries.

Banking continues to lead investment, with use cases spanning fraud analysis, threat intelligence, contact centres, and customer self-service platforms.

Financial institutions are increasingly shifting towards mission-critical automation and multi-agent systems, while focusing on FinOps, sovereign cloud infrastructure, and governance.

The software and information services sector follows, with significant spending on AI infrastructure provisioning to support agentic workloads through platform and infrastructure services.

Retail ranks as the third-largest sector, investing in digital commerce, AI-driven customer service, personalisation, pricing, and supply chain optimisation.

Among the fastest-growing industries, healthcare stands out, driven by applications such as clinical workflow and resource optimisation across major European markets.

Media and entertainment is also expanding rapidly, with a 37.3 per cent growth rate supported by generative AI in content creation, video production, and audience personalisation.

Other sectors showing above-average growth include professional and personal services, utilities, and life sciences, reflecting broad-based adoption of AI technologies across the economy.

The findings indicate that AI spending is growing faster than overall IT expenditure due to its ability to deliver tangible business outcomes and strategic advantages.

This is encouraging organisations to prioritise AI investment over traditional IT, accelerating the shift towards enterprise-wide deployment across European markets.

Banking remains the largest opportunity for AI vendors across most major markets, while healthcare continues to present the strongest growth potential.

Additional opportunities are emerging in media, insurance, and professional services, particularly in areas such as fraud prevention, customer service automation, and AI infrastructure development.

At the same time, regulatory complexity, talent shortages, and cost pressures remain the primary constraints shaping the future trajectory of the market.