Executive summary
The massive expansion of the global technology, media, and telecommunications (TMT) sector has been one of the driving and defining forces of the 21st century’s digital and economic transformation. Yet amid the critical sector’s unprecedented growth, European TMT companies find themselves at a crossroads, grappling with a stark decline in market capitalization and an urgent need for renewal to sustain economic competitiveness.
Even as TMT’s global market capitalization soared from around $7 trillion in 2000 to $34 trillion last year, Europe’s share of cumulative global TMT market capitalization plunged from 30 percent to 7 percent. This decline in share translates to an $8 trillion missed opportunity—value that would have been generated by 2024 if Europe had maintained its share of market cap.
However, new McKinsey research suggests that the next wave of technological change and digital disruption could lead to a genuine European TMT turnaround. This report identifies five critical battlegrounds emerging in different sector value pools—content and commerce, AI and software, connectivity, data infrastructure, and tech services—that could unlock nearly $800 billion in incremental value by 2030.
The path to seizing these opportunities is not simple. European TMT companies still face significant structural and commercial hurdles, including market fragmentation, insufficient investment capital, and restrictive regulations. Geopolitical complexities, such as tech sovereignty, data security, and supply chain resilience, also loom large, particularly given the unpredictable landscape of tariffs and trade controls.
In spite of such obstacles, this report argues that strategic shifts and targeted investments in these areas could ignite a TMT resurgence. Drawing on comprehensive research, including insights from top European TMT executives, the report examines the five battleground opportunities in depth and delves into the broader economic and geopolitical forces shaping the sector.
Ultimately, the TMT sector’s renewal is not just a strategic imperative but a crucial determinant of Europe’s long-term economic resilience and prosperity, despite the formidable challenges that lie ahead.
Introduction
A defining economic and financial success story of the 21st century’s first quarter has been the massive expansion of the technology, media, and telecom (TMT) sector. Its diversified and dynamic array of companies has fueled unprecedented increases in wealth, productivity, and standards of living around the globe. Yet even as TMT companies in the United States, Asia, and other parts of the world have enjoyed soaring revenues and valuations, their peers in Europe have experienced largely stagnant growth by comparison, causing their share of the sector’s global market capitalization to drop dramatically.
Given TMT’s centrality to sustainable, ongoing economic growth and competitiveness, the sector’s renewal is critical to Europe’s long-term well-being. Europe had already been focusing on expanding its domestic technology base and reducing reliance on foreign suppliers, but the sudden expansion of tariffs and trade controls and rising geopolitical tensions have further underlined these goals. Both the public and private sectors are putting greater emphasis on areas such as mission-critical infrastructure, data security, sovereign AI and cloud, supply chain resilience, and business continuity and control. Amid growing macroeconomic uncertainty and inflationary pressures, digital taxation and new revenue models are also attracting more attention.
The region’s TMT leaders have some genuine concerns about their ability to pull off a comeback. These include structural constraints, such as the state of European regulation, which companies recognize are largely out of their control. As recently outlined in several public- and private-sector reports, the European economy’s future resilience and competitiveness, including that of the TMT sector, may depend on new frameworks and policies that foster greater innovation, access to capital, and scaling.
Still, our research indicates that the sector has a strong opportunity to turn things around. This significant value creation opportunity, which we estimate will be worth nearly $800 billion of incremental value in Europe by 2030, lies in five battlegrounds that are rapidly emerging from several key TMT value pools: content and commerce, AI and software, connectivity, data infrastructure, and tech services.
This report, based on research that includes an in-depth survey of top TMT executives across Europe, examines the current state of the critical sector and the five battleground opportunities that offer a real possibility of economic and financial renewal. It also lays out the broader economic and geopolitical forces that are shaping those opportunities and making a European TMT resurgence an even higher priority.
Europe’s TMT lost decades
The numbers tell the story of Europe’s recent TMT struggles in the starkest of terms. Over the past two and a half decades, TMT’s share of the 50 most valuable global companies has risen from 40 to 60 percent, while the sector’s total global market capitalization soared from around $7 trillion in 2000 to $34 trillion last year. Technology alone now accounts for half of the top 50 companies, up from 20 percent in 2000, and its market cap has skyrocketed fivefold to $25 trillion.
Yet Europe has missed out on much of that bounty. Over the same time period, the region’s total representation among the world’s 50 most valuable companies has dropped roughly 80 percent (from 22 companies to four), while its share of cumulative global TMT market capitalization suffered a similar fate, dropping from 30 percent to 7 percent (Exhibit 1). This precipitous decline in share translates to an $8 trillion missed opportunity—value that would have been generated by 2024 if Europe had maintained its share of market cap.
The recent stumbles of European TMT companies have happened while their US peers have made great strides. For instance, even as the number of European TMT enterprises in the 50 most valuable companies fell more than 60 percent (from eight companies to three), the US TMT share more than doubled (from nine to 22). That sharp regional disparity is reflected in several other TMT-related metrics, including revenue, growth rates, share of global IPOs, and share of global unicorns (Exhibit 2).
For a global context, consider that European TMT revenue roughly tripled over the past 20 years, whereas the rest of the world saw TMT revenues grow by around five times (Exhibit 3). Put another way, the incremental TMT revenue in Europe during this time made up a mere 10 percent of the sector’s total incremental revenue globally.
Navigating the new geopolitical reality
The technological transformations that offer Europe’s TMT sector the possibility of a resurgence are not happening in a vacuum. On the contrary, economic and geopolitical forces play a key role in shaping the opportunities and the ways the various players and stakeholders approach them. Here is a look at four of the most important factors driving much of the activity around the emerging TMT battlegrounds.
Mission-critical infrastructure
At a time when both public- and private-sector leaders are increasingly focused on data security and economic resilience, the state of Europe’s mission-critical infrastructure is attracting growing attention. The European Commission’s 2030 Digital Compass initiative includes developing a pan-European, interconnected data-processing infrastructure, deploying 5G corridors, acquiring supercomputers and quantum computers, and establishing a secure quantum communication infrastructure. The commission has estimated it will take more than $130 billion in annual investments to close the infrastructure and skills gap with leading regional competitors and boost economic resilience, competitiveness, and innovation across Europe.
In March, the European Commission allocated $1.4 billion to help deploy critical technologies that accelerate innovation and strengthen Europe’s tech sovereignty. Key priorities for the funding, which is part of the 2025–27 Digital Europe Programme (DIGITAL) work program, include advancing AI and gen AI adoption, cyber resilience, digital skills, and interoperable public services.
Geopolitics is also driving shifts in the private sector. For example, semiconductor companies Infineon Technologies and STMicroelectronics recently received state aid from Germany and Italy, respectively, as part of the EU Chips Act initiatives. Each company is expanding its production capacities within Europe as part of a broad regional push to reduce reliance on foreign suppliers in response to growing geopolitical concerns about supply chain resilience and security. At the same time, many companies are expanding their teams that focus on real-world events and factors, with some, such as Merck and Nokia, creating new leadership positions such as chief political officer or chief geopolitical and government relations officer.
Sovereign cloud and AI: Ensuring data sovereignty and driving innovation
The rise of sovereign cloud and AI presents a pivotal opportunity for Europe’s TMT sector to stage a comeback partly by focusing on ensuring data sovereignty and leveraging AI for innovation. By 2027, the European public cloud services market is expected to reach around $300 billion, growing at a CAGR of 20 percent. The Schrems II ruling and exposure to the US Cloud Act have highlighted the risks of foreign jurisdiction over European data, especially with US hyperscalers controlling almost 70 percent of the European cloud market. Sovereign cloud (or sovereign AI) solutions enable GDPR compliance and protect sensitive data from extraterritorial access, mitigating risks of service disruption due to forces outside regional players’ control. They also provide enhanced business continuity and control, which is crucial for sectors vulnerable to shutdowns, such as defense, healthcare, and critical infrastructure.
The European Commission’s emphasis on trusted AI development is also driving a growing sovereign AI ecosystem. This is essential for defense sector clouds that require operational sovereignty and rapid deployment of autonomous or cyber systems. Initiatives like Gaia-X and the Sovereign European Cloud API aim to create interoperable, innovation-friendly ecosystems that uphold European legal and privacy standards. Additionally, AI governance is emerging as a critical focus area with significant implications for European companies. The EU AI Act’s requirements have yet to be fully implemented by 95 percent of organizations, and close to 50 percent have yet to allocate any budget for implementation.
As regulatory frameworks tighten, organizations will need to adapt to ensure their AI systems meet stringent legal and privacy requirements. This regulatory environment creates challenges and opportunities for European companies to innovate within the bounds of these new rules.
Digital taxation and revenue models: Boosting economic resilience
Digital taxation and evolving revenue models are central to Europe’s economic strategy in the digital age. The EU’s long-proposed common system for digital services taxes is expected to generate $5 billion to $6 billion in revenue per year, while individual EU nations are already levying or prepping similar taxes, and the OECD nations have been developing an alternative tax system with similar goals. These new taxation frameworks aim to ensure that tech multinational powers contribute equitably to the economies in which they operate and their customers or users reside, addressing the perceived imbalance caused by traditional tax systems. Revenue will be further fueled by the growing European digital advertising market, which is projected to reach $115 billion to $125 billion this year, with a compound annual growth rate of 7 to 8 percent. The introduction of digital taxes also reflects a broader strategy to enhance economic resilience amid geopolitical uncertainties and inflationary pressures. By enhancing revenue sources, the EU could fund critical digital infrastructure projects, foster innovation, and reduce dependency on foreign technology providers.
Strategic responses to tariff challenges
To address the complexities of tariffs, TMT executives can evaluate their impact on supply chains, customers, and investments to uncover opportunities for value creation. Key actions include assessing supply chain vulnerabilities, exploring alternative suppliers, evaluating demand shifts, and validating strategic adjustments. Leaders should map supply chains beyond first-tier suppliers, calculate total landed costs, and use scenario planning to anticipate disruptions, cost changes, and retaliatory tariffs. Exploring new supply sources, particularly in markets offering subsidies or incentives, can help mitigate risks and reduce switching costs.
Additionally, analyzing how tariffs affect consumer demand and market access enables firms to adjust pricing strategies and operating expenses. Regular market scans can reveal competitors’ exposure to tariffs, helping companies identify opportunities to strengthen their position. Any strategic shifts, however, should be grounded in rigorous analysis to ensure long-term value creation despite unpredictable trade policies. By optimizing supply chains, reallocating resources, and leveraging technology, leaders may be well positioned to navigate the shifting global landscape.
The TMT turnaround opportunities
According to a recent McKinsey survey, European TMT CEOs and other top executives appear cautiously optimistic about their sector’s overall chances of recovery. The overwhelming majority (92 percent) acknowledge that Europe has not been a TMT pioneer over the previous decade. Close to 60 percent say they have missed out on digital intelligence such as AI, machine learning (ML), and automation as a growth theme over the past three to five years. However, a large majority (85 percent) also say Europe could take a trend-setting role as
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