The competition within the AI application layer is escalating, with the United States currently at the forefront in developing large AI models. However, this landscape changes when focusing on the application layer, where companies such as Lovable and Synthesia are gaining traction. Insights from the 2025 Globalscape report by Accel, a global venture capital firm, reveal these trends within the AI and cloud market. Notably, Accel has invested in both Lovable and Synthesia.

Recent analysis indicates that, in 2025, cloud and AI applications in Europe and Israel attracted 66% of the private funding received by their American counterparts. Philippe Botteri, an Accel partner, highlighted this shift, noting that Europe accounted for only one-tenth of U.S. funding a decade ago. The increase in funding signifies the maturation of the European ecosystem, which has developed founders and investors capable of building successful software companies over the last ten years.

Botteri further explained that this growth transcends mere statistics; it reflects a deeper comprehension among European and Israeli entrepreneurs in leveraging technical talent alongside market knowledge. Jonathan Userovici, general partner at Headline in Paris, confirmed this trend, stating that founders across sectors such as legal, healthcare, manufacturing, and marketing are emerging with a combination of high-level technical skills and market insights.

The AI Europe 100 report, published by Headline, supports these observations by identifying AI-native application startups in Europe that are positioned to become industry leaders. These companies are recognized for their growth rates, team structures, and technological innovations, indicating their potential success in the European market.

Accel's report also distinguishes the current wave of AI applications from previous iterations. A new category of AI-native applications has achieved $100 million in annual recurring revenue in a matter of years, a feat that previously required decades. Botteri remarked on the unprecedented growth and efficiency of these companies, noting that revenue per employee is the highest recorded for software firms, a trend observable on both sides of the Atlantic.

Despite this rapid expansion, Botteri cautioned against assuming that established cloud software companies will vanish. The Accel Public Cloud Index has experienced a year-over-year increase of 25%, as these companies incorporate new functionalities into their products. Some private firms are evolving rapidly enough to be classified as AI-native, with Accel portfolio company Doctolib serving as a key example.

While there are optimistic projections for domestic foundation model companies like Mistral AI in Europe, Accel maintains a more measured outlook regarding the potential of European model companies. Botteri acknowledged the possibility of smaller models becoming future leaders but indicated that the current environment does not present abundant opportunities for such growth.

Conversely, venture capitalists are actively pursuing investment opportunities within the AI application layer, even amid ongoing concerns about the defensibility of these investments. Botteri argues that defensibility can be established through product-centric offerings that achieve rapid market adoption.

Additionally, the perspective that the market's focus is exclusively on models and applications is overly simplistic. Lotan Levkowitz, managing partner at Grove Ventures in Israel, emphasized that while many chase models and compute actions, data remains undervalued. He asserted a belief that companies concentrating on proprietary data and data flywheels are likely to be highly profitable.

The competition for dominance in the AI application layer continues, with established players and emerging startups striving to navigate this dynamic and rapidly evolving landscape. The interactions between innovation, investment, and market comprehension will shape the future trajectory of AI applications worldwide.