EU AI Act Delays: A Regulatory Crossroads for European Tech Stocks

The European Union's Artificial Intelligence Act (AI Act), designed to regulate high-risk AI systems and set global standards for ethical AI, has stumbled into uncharted waters. Delays in enforcing key provisions, including the long-awaited Code of Practice for General-Purpose AI (GPAI) models, have created a regulatory limbo that is reshaping the investment landscape for European tech firms. For investors, this uncertainty is a double-edged sword: it could either unlock opportunities in undervalued stocks or amplify risks for companies caught between innovation and compliance.

The Regulatory Timeline: Stalled Progress and Rising Tensions

The AI Act, which came into force in August 2024, was supposed to roll out obligations in phases. Key deadlines included prohibitions on certain high-risk AI systems by February 2025 and GPAI model governance rules by August 2025. However, the European Commission has delayed finalizing the GPAI Code of Practice—a critical guideline for companies—due to stakeholder disputes over transparency, data governance, and systemic risk safeguards. Originally due by May 2025, the Code's completion has been pushed to late summer, with Poland, as the EU Council's rotating president, advocating for a further delay in enforcement until standards are clear.

These delays have exposed a rift between regulators, industry, and policymakers. European tech firms, particularly startups and SMEs, argue that the Act's compliance costs threaten innovation, while U.S. tech giants, including Meta, have lobbied for softened rules. The Commission now faces a dilemma: enforce the Act's original timeline and risk backlash, or delay implementation and erode its regulatory credibility.

The Impact on Valuation Multiples: Uncertainty vs. Flexibility

For investors, the AI Act's regulatory uncertainty is already reflected in European tech stocks. Companies in the AI sector, such as SAP (which acquired AI startup Sapho), Siemens, and French AI firm Atos, face a tug-of-war between two dynamics:

1. Risk Premium Increase: Uncertainty often drives investors to demand higher returns for perceived regulatory risks, compressing valuation multiples like P/E ratios.
2. Compliance Cost Relief: Delays may reduce near-term compliance burdens, allowing firms to focus on growth without immediate penalties.

Current data shows that European AI stocks have underperformed broader tech indices since early 2025, with P/E multiples contracting by 15–20% amid regulatory uncertainty. However, companies with strong compliance frameworks or diversified revenue streams—like SAP, which derives only 20% of revenue from AI—might weather the storm better than niche AI startups reliant on EU markets.

Investment Implications: Navigating the Regulatory Crossroads

Investors should adopt a nuanced approach:

1. Sector Rotation: Shift toward European tech firms with diversified operations or low exposure to high-risk AI systems. For instance, Siemens, which focuses on industrial AI applications with clear use cases, may be less vulnerable than pure-play AI startups.
2. Wait for Clarity: The July 2025 consultation on high-risk AI classifications and the potential “stop-the-clock” mechanism could provide catalysts. Investors might wait until late summer for clearer guidance before re-engaging.
3. Focus on U.S. Competitors: While the EU's delays may indirectly benefit U.S. firms by reducing regulatory friction, European companies with cross-border operations (e.g., CRWD, CrowdStrike) could also benefit from a prolonged period of compliance flexibility.

Conclusion: A Window of Opportunity, but Risks Remain

The EU AI Act's delays are creating a paradoxical environment: regulatory flexibility could become a tailwind for European tech stocks, but prolonged uncertainty might deter capital allocation. Investors should prioritize firms with robust governance structures, diversified revenue streams, and clear communication with regulators. While the path forward remains uncertain, the coming months will test whether the AI Act becomes a catalyst for innovation—or a cautionary tale of overreach. For now, patience and sector-specific analysis are the best tools for navigating this regulatory crossroads.

Investment Takeaway: European AI stocks may present buying opportunities in the second half of 2025 if delays reduce short-term compliance costs. However, selective exposure to companies with diversified business models and strong regulatory engagement is critical to mitigate risk.