EMEA Tech Sector in Q1 2025: AI Growth Amid Geopolitical Headwinds

The EMEA tech sector entered Q1 2025 with a mix of resilience and uncertainty. While companies like Capgemini and Ericsson demonstrated strategic pivots toward AI and cloud infrastructure, geopolitical tensions and trade tariffs cast a shadow over growth prospects. Here’s the breakdown of what’s driving the sector—and where risks lie.

The AI Pivot: Capgemini Leads, But Trade Risks Linger

Capgemini’s Q1 results exemplify the sector’s dual trajectory. Despite a -0.4% revenue decline at constant currency, the French tech giant reported 6% of bookings tied to generative AI and agentic AI—a clear bet on the future. Its partnerships with Nvidia and Google Cloud underscore its push into high-margin AI services.

Yet, Capgemini’s performance wasn’t uniform. While North America and Asia-Pacific/Latin America grew strongly (+0.8% and +7.6% respectively), France and Rest of Europe lagged (-4.9% and -2.3%). This highlights a geopolitical paradox: AI-driven growth in key markets is offset by sector-specific slowdowns in manufacturing and energy—industries hit by trade tariffs and geopolitical instability.

Regional Winners and Losers

• Software AG (Germany): A 15% revenue jump to €320 million, driven by cloud services and manufacturing sector demand. Its AI-driven integration platforms are resonating in industrial markets.
• IFS (Sweden): A 22% revenue rise to $185 million, fueled by Middle Eastern infrastructure projects and AI-enhanced ERP systems.
• Ericsson (Sweden): A 9% revenue increase to €2.25 billion, with 5G and IoT deployments powering growth in the UAE and Saudi Arabia.

Meanwhile, France’s tech sector faced headwinds. Capgemini’s struggles there reflect broader issues in manufacturing and energy—a reminder that EMEA’s growth hinges on more than just tech adoption.

IPO Pipeline Swells, but Markets Are Pickier

The TMT IPO pipeline in EMEA grew 77% year-over-year, yet completed deals rose only 2%. Investors remain cautious amid macroeconomic uncertainty. Key trends:
- AI as a selling point: 47% of TMT IPO candidates highlighted AI in filings, with sectors like HealthTech (e.g., drug discovery) and FinTech leveraging AI narratives.
- Regional disparities: European IPOs raised €3.1 billion, but the UK’s tech sector limped to £0.1 billion in proceeds, relying on secondary market activity instead.
- Equity market resilience: European indices rose +5% in Q1, outperforming the S&P 500’s -5%. This bodes well for future listings—if markets stabilize.

The Dark Cloud: Trade Tariffs and Inflation

Porsche’s lowered 2025 forecasts—citing U.S. tariffs and weak Chinese EV demand—serve as a cautionary tale. For EMEA’s export-heavy tech sector, tariffs are a double-edged sword:
- Cost pressures: Input costs for semiconductor firms and logistics providers rise.
- Localization push: Firms like aml.com (Poland) are capitalizing on demand for EU-based supply chain optimization.

Outlook: AI and Defense Are the New Growth Frontiers

The sector’s path forward hinges on two pillars:
1. AI adoption at scale: Companies like Software AG and IFS are proving that AI can boost margins in legacy industries.
2. Defense and cybersecurity spending: Capgemini’s pivot to “sovereignty projects” and Ericsson’s work in smart cities align with rising EU defense budgets.

Conclusion

EMEA’s tech sector is at a crossroads. While AI-driven innovation and regional equity strength offer optimism, trade tariffs and sector-specific slowdowns pose risks. Key data points reinforce this duality:
- Capgemini’s AI bookings now account for 6% of revenue, up from negligible levels in 2023.
- EMEA’s TMT IPO pipeline grew 77% despite a 2% drop in completed deals—suggesting pent-up demand if markets stabilize.
- Geographic contrasts: Saudi Arabia’s infrastructure boom (+30% in Ericsson’s IoT services) contrasts with France’s tech slump (-4.9% in Capgemini’s revenue).

Investors should focus on firms leveraging AI in defensible sectors (e.g., manufacturing, energy, defense) while avoiding pure-play tech plays exposed to trade volatility. The EMEA tech story isn’t over—it’s just getting more nuanced.

The sector’s next chapter will be written by those balancing innovation with geopolitical agility.