Facing funding barriers, euro zone firms use own cash for AI, ECB blog says

Euro zone firms are mostly using ​their own cash to invest ​in artificial intelligence and face funding ‌barriers, unlike ​their US counterparts which have gone on a global borrowing spree to fund their expansion, data from the ‌ECB showed on Friday. US tech giants, often called hyperscalers or the Magnificent Seven, are investing hundreds of billions of dollars into rapid expansion and borrowing has been so ‌high, they are crowding out others, including even sovereigns, from some debt markets.

The ‌AI expansion in Europe is more modest, however, and 72% of firms say they will use internal funds such as cash flow or retained earnings to finance investment, the ECB said in ⁠a blog post. Around ​16% said they ⁠plan to use bank loans, while 6% of firms mentioned equity and venture capital and only ⁠1% were looking into debt securities, the blog post, which does not necessarily represent the ECB's ​views, said.

"The limited role of external finance raises critical questions about potential ⁠barriers in the euro area’s financial ecosystem," the blog said, arguing that firms face hurdles when investing in ⁠intangible ​investments. Firms are more likely to rely on external funding when they invest into tangible assets such as hardware or data infrastructure as these could be ⁠used as collateral, the blog added.

"That may point to potential structural challenges that limit access ⁠to financing for ⁠intangible investment," the blog said. Over 80% of firms said they plan to use just a single financing instrument, rather than a ‌combination, and ‌this was predominantly internal funds.