Can the Chips Act 2.0 Finally Match Resources to Rhetoric?

Control of semiconductor technology has become one of the clearest measures of global techno-economic power. From US-China competition over frontier AI models and export controls to Europe’s efforts to rebuild sovereign capacity in traditional heavy industry and clean technologies, semiconductors are at the heart of geopolitical and economic strategies. The semiconductors found across technology value chains are key to strategic and economic leverage, and control over key nodes is an important instrument in any country’s geopolitical toolbox.

Europe’s initial attempt to shore up its geopolitical standing in semiconductors through the 2023 Chips Act did not result in an independent semiconductor industry. The European Commission’s recently released proposal for an updated Chips Act 2.0 is an attempt to course-correct and respond to Europe’s push for greater sovereign capabilities. At the same time, it aims to reduce external dependencies in a technology that underpins 21st-century society and is critical for everything from cars to dishwashers to drones and, of course, AI. But it risks falling into the same trap of trying to achieve too much with too little, concentrating efforts in areas such as advanced chips—where Europe’s capacities and needs are misaligned—instead of leaning into and reinforcing the bloc’s existing strengths. Forthcoming negotiations over Chips 2.0 offer an important opportunity to ensure that Europe’s semiconductor policy is up to the task.

From Pandemic Shortages to Frontier AI

The revamped Chips Act builds on previous efforts to strengthen chip production in Europe. The EU’s 2021 Digital Compass first articulated the goal of boosting Europe’s declining share of global semiconductor manufacturing, setting a goal of 20% by 2030. The resulting 2023 Chips Act was largely motivated by pandemic-era shortages, which were especially acute in the automotive sector. It structured Europe's semiconductor ambitions across three pillars: a "Chips for Europe" initiative to support EU-wide capacity-building and innovation in semiconductors; a supply and resilience framework to approve state aid allocations for the construction of new chip-related facilities; and crisis response and monitoring capabilities through a European Semiconductor Board. 

Yet the Chips Act ultimately failed to align the continent’s domestic needs and capacities with its broader ambitions. A 2024 reporton the state of the Digital Decade underlined this gap between reality and ambition for European semiconductors, predicting that Europe’s share of manufacturing capacity would likely only reach 11.7% by 2030. The Act promised to mobilize €43 billion in public and private investment. But with only 10% of this amount from Commission funding, success was dependent primarily on member-state and private-sector investment in a sector where construction of a single fabrication facility can cost up to $20 billion and where Taiwan Semiconductor Manufacturing Company (TSMC) spends over $7 billion on R&D annually. The mismatch was especially the case for leading-edge (sub-10nm) chips, a sector dominated by TSMC, Samsung, and Intel. Europe’s industry, particularly the automotive industry, for the most part requires legacy chips at larger nanometers. This raises the question of whether directing resources into cutting-edge production is an efficient strategy, given the reality of European producers’ needs. Intel’s planned €30 billion investment in a Magdeburg, Germany plant was ultimately cancelled in 2025 due to reportedly weak demand, although a recently-announced €5 billion investment in Ireland illustrates the fast-moving nature of the chip industry. A 2025 Special Report by the European Court of Auditors (ECA) found that the Chips Act “lacks clarity regarding its targets and monitoring”, and contains unclear timelines for implementation. The ECA called for an “urgent reality check.”

The Chips Act 2.0 proposal frames European competitiveness in chips as a cornerstone of the Tech Sovereignty package’s ambition of increasing European control and influence over the sector and limiting the risks of dependencies. It arrives, however, at a moment of significant shifts in the semiconductor landscape. AI is increasing the demand for both advanced and mature node semiconductors, thousands of which are required for the servers inside rapidly-expanding data centers. The new electrical grid capacity these data centers require is also stoking demand for mature-node power semiconductors, while the short lifespan of GPUs needed for AI training means constant turnover and increased demand for replacement chips. While Europe’s current capacity to produce advanced-node chips is minimal, rising demand across the industry can still be a boon to areas where Europe maintains key strengths.

The Act’s four pillars attempt to address its predecessor’s shortcomings and respond to these new AI-related challenges. These include improving conditions for investment and competitiveness through initiatives such as “Grand Challenges” for AI chips and accelerated permitting; stimulating demand and industrial uptake through procurement policies and “demand accelerators” that will match industry needs with new semiconductor projects; implementing supply-side measures such as state aid directed at areas where Europe lacks capabilities; and increasing resilience and reducing dependencies by supporting industry information-sharing and risk assessment and mitigation. Collectively, these measures aim to ensure that Europe is better positioned to compete in an era in which semiconductor capacity increasingly underpins AI leadership and economic power. 

How Chips 2.0 Can Get It Right

The Chips Act 2.0 must focus on realistic opportunities for Europe’s semiconductor sector. As the Act moves into the legislative process, lawmakers in Brussels should consider how to make European tech sovereignty efforts for chips more effective by building on Europe’s existing advantages in semiconductor equipment, research, and industrial expertise.

European strengths within the semiconductor supply chain include firms such as ASML in the Netherlands, which holds a monopoly on the advanced lithography equipment needed for high-end chips, suppliers such as Zeiss and Trumpf, various chemical inputs, and Nexperia and other suppliers that underpin Europe’s auto sector. Supply chain lessons of the past decade show that no country can achieve complete sovereignty, and the industry is defined by deep specialization and interdependence, with no single actor controlling the entire value chain.

Instead of a focus on leading-edge chips for which domestic demand remains limited, the Chips Act 2.0 should instead focus on reinforcing the segments of the ecosystem where Europe enjoys a competitive advantage and where others depend on Europe capabilities. Strategic investments in these strengths would help ensure that the EU remains an indispensable part of a particularly complex and globally interconnected semiconductor value chain (Intel, for example, claims 10,000 suppliers). The proposed “strategic partnerships on semiconductors” meant to “strengthen cooperation with international partners” as part of Pillar 1 in the Chips 2.0 proposal could present avenues through which to invest, especially as the semiconductor investments in the US Chips and Science Act continue under the Trump administration. However, the fact that export controls and other security measures to better control these key leverage points are located largely at the national level points to a broader potential reality. Europe's influence depends less on pursuing semiconductor self-sufficiency than on sustaining and expanding the capabilities that make it an essential partner in the global ecosystem today.

A semiconductor strategy focused on doubling down on key strengths is the best use of limited resources in the context of broader—and still highly unpredictable—economic trends that will continue to shape the semiconductor market and Europe’s needs. Europe should be particularly strategic in hedging its bets as the buildout of the AI economy and data centers remains unpredictable. Future AI models may be less resource-hungry and ultimately require fewer chips. High energy prices and grid congestion could ultimatelylimit data center expansion in Europe, with spillover effects across the semiconductor ecosystem. For the new Chips Act to build on past efforts and reinforce European leverage in strategic technology, it should focus not on directing resources to unattainable goals, but on ensuring that Europe remains an indispensable player at key sites in the semiconductor supply chain.