Leading American artificial intelligence firms OpenAI and Anthropic recently suspended their plans for major stock market listings, prompting debate over whether this shift could benefit European equities. Some investors anticipate that disillusionment with high US AI valuations may redirect capital toward undervalued European stocks. However, while equities might see some rotation, similar movements have not been observed in bond markets, where concerns about US debt and deficits have not triggered a corresponding rise in demand for European sovereign debt. Instead, borrowing costs for several European governments, including the UK, have risen alongside US counterparts amid inflation and fiscal concerns.
European equity indices such as the FTSE 100 and the Euro Stoxx 600 have risen roughly 15 percent over the past year, keeping pace with major US benchmarks like the S&P 500 and Dow Jones. Yet, a recent report jointly issued by the Centre for European Reform, the Jacques Delors Centre, and the Bertelsmann Stiftung highlights structural weaknesses in European stock markets that limit their ability to finance innovative companies and compete with the United States.
The report presents stark figures underscoring what it describes as an "innovation gap" between Europe and the US. European stock markets are approximately one-third the size of US markets. In 2025, the number of companies choosing to list in Europe dropped to its lowest level since the 2009 financial crisis. Meanwhile, the US attracts about one-third of all global initial public offerings (IPOs), including a significant share from European firms opting to list there instead of at home.
Market capitalization comparisons further illustrate this divide. European companies listed on stock exchanges account for about 55 percent of the European Union’s total GDP of $23 trillion, while US-listed firms represent approximately 147 percent of the US economy, valued at $32 trillion. Valuations of US-listed companies often exceed three times those of European peers, a discrepancy not fully explained by differences in profitability.
The report reveals that European firms, including those in the UK, Norway, and Switzerland, tend to go public with smaller valuations and offer fewer shares at lower values. Nearly 75 percent of European IPOs are priced below €100 million, compared to less than half in the US. Moreover, half of European listings since 2014 have fallen within the €1–25 million range, double the proportion in the US market. Only 12 percent of European IPOs between 2014 and 2025 reached a valuation of €1 billion or more at listing, compared with nearly a third in the US.
These smaller-scale listings limit opportunities for institutional investors such as pension funds, which seek larger, more liquid investments. The report attributes Europe’s underperformance to a bank-centric financing model, where roughly €10 trillion in citizen savings are held in low-risk bank deposits rather than invested in equities via pension funds or retail investors.
European policymakers face challenges in unlocking this capital for higher-growth opportunities. Proposals include the creation of a single European stock exchange, endorsed by the European Central Bank and the German government, aimed at increasing market liquidity and scale. Nevertheless, the report suggests that such structural changes alone would not sufficiently address Europe’s deeper issues with productivity, innovation, and market liquidity.
Former European Central Bank President Mario Draghi has voiced concern over Europe’s reliance on foreign technology, warning that lagging behind in AI could have dire economic consequences. He emphasized that Europe currently plays a minor role in the AI value chain and risks becoming a technology adopter rather than an innovator.
The authors call for broader reforms, including harmonizing cross-border rules on taxation, securities, and clearing, as well as encouraging intra-EU mergers. They argue that supporting innovative companies at all stages of growth is crucial if Europe is to narrow the innovation gap and provide sustainable financing alternatives to its firms in a rapidly evolving global economy.