European AI market will grow by 25 per cent in the next five years despite economic challenges - IDC

The analyst firm reports that AI-centric software will be the main driver for growth with a compound annual growth rate (CAGR) of 32.4 per cent

The European AI market is set to carry on the upward trajectory in the upcoming years, says International Data Corporation (IDC), claiming that in the 2022-2026 period the market will see a 25.5 per cent CAGR.

The IDC Worldwide Semi-annual Artificial Intelligence Tracker also reports that other areas of the market such as AI services, non-AI-centric software and AI hardware will log more moderate growth - respectively at 27.2 per cent, 16.7 per cent, and 15.2 per cent.

IDC expects AI's total addressable market to reach $191bn by 2026.

Senior research manager at IDC, Martin Nuska, commented on the results saying: "The next five years will represent a crucial period in the commercial adoption of AI software, as many companies and governments are now investing more to make their processes more agile, efficient, and resilient."

He spotlighted that innovative AI models will have the potential to drive business value, which include deep learning-based language models, generative adversarial networks, and various models for digital twins.

AI's 'price premium' and a possible solution to the skills gap

Inflation, recession, and labour shortages will take a hit on investments, particularly for AI infrastructure.

This is because AI infrastructure usually comes at a price premium. However, IDC claims that the market for AI servers/storage in Europe will show a slow but steady growth pattern during the recast period.

The IDC report shows demand for AI solution from professional services providers to continue growing despite the economic challenges which IDC claims will be due to the market's resilience shown during the pandemic. Areas such as AI-enabled analytics computer vision, natural language processing, and AI-driven process automation can help businesses to deal with price inflation, labour shortages, and the need to stay competitive.

"Europe faces a potential recession, while the labour market is marked by contradictory forces - a shortage of skilled workers in certain tech areas on one hand, while on the other even the biggest tech companies like Amazon, Google, and Microsoft are laying off tens of thousands of workers," continued Nuska.

"We expect the AI market to continue performing strongly nevertheless, because of the technology's potential for long-term cost optimisation and as a possible solution to the skills gap."