European semiconductor startups cash in as VCs turn to hardware - PitchBook
European semiconductor startups are experiencing a surge in venture capital funding, exemplified by Swiss AI chipmaker Kandou AI's $225 million raise, as investors shift focus from vulnerable SaaS models to hardware technologies that offer greater defensibility amid growing AI reliance and geopolitical pushes for technological self-sufficiency, with European semiconductor funding reaching record levels (€972 million in 2025) and overall hardware investment doubling to €2.7 billion.
With the SaaS model under pressure, investors are chasing defensibility—and European hardware startups are delivering it.
Doubts about the defensibility of the SaaS model are pushing more investors toward hardware, and Europe’s semiconductor startups are benefiting.
This week, Swiss AI chip company Kandou AI raised $225 million from SoftBank, Maverick Silicon and others. The deal is one of the largest European VC rounds in the space to date, and has become emblematic of growing investor appetite for the sector.
According to PitchBook data, European semiconductor startups raised a record €972 million (about $1.1 billion) across 69 deals last year. Q1 isn’t over yet, and funding for the segment has already exceeded €380 million in 2026.
Momentum for semiconductor investment isn’t slowing. The AI reliance on chips is expected to expand as the technology continues to evolve. McKinsey estimates that the global semiconductor industry could reach a value of $1.1 trillion by 2030, driven by the growth of AI and data centers.
So far, Europe has lagged the US and Asia for semiconductors, but increased geopolitical tensions alongside AI growth are prompting a push for self-sufficiency in critical technologies.
Outside semiconductors, VC funding for European hardware startups has also reached unprecedented levels. Some €2.7 billion was invested last year, more than double the amount in 2024.
As AI adoption has accelerated, it has exposed the vulnerabilities of many SaaS business models. With software development becoming easier—particularly with the emergence of vibe coding startups such as Sweden’s Lovable—the barriers to entry are lower than ever, and owning a category has become harder.
VCs are setting their sights on hardware for a simple reason: defensibility. A startup with leading technology in areas including semiconductors, robotics or quantum is extremely hard to replicate. With advances in AI, such as physical models and hardware, the role of these technologies will become more important to the economy and VCs.
Europe, with strong engineering talent and a deep industrial heritage, is poised to be a leader in hardware, and capital for companies like Kandou AI will likely only grow.