Europe needs to choose between competing in artificial intelligence (AI) development and maintaining its stringent climate goals, Wedbush Securities analyst Dan Ives has suggested.

Ives, who is also an investor in Tesla, has warned that Europe risks falling behind in the AI race due to its energy constraints. The region faces a fundamental challenge as energy emerges as the primary bottleneck for AI-related data centre projects globally. While the United States activates fossil-fuel plants to power its AI infrastructure buildout, Europe requires developers to disclose energy and water efficiency measures, creating regulatory obstacles that can delay project launches.In an interview with CNBC, Ives said, "It's like a fork in the road moment for Europe.” He said that the bloc can either “play in the future” or risk “missing a big part of this technology wave."The tension between AI ambitions and environmental commitments has intensified as the computational demands of AI development continue to escalate, forcing policymakers to confront whether the region's world-leading climate standards are compatible with remaining competitive in one of the most strategically essential technology sectors.

How environmental policies may be driving away AI companies from Europe

The European Union (EU) is recognised for its environmental policies and initiatives, like the upcoming carbon border tax. However, some critics argue that these regulations hinder business operations. Europe is viewed as "anti-entrepreneur", Ives said, which causes European technology companies and startups to relocate to the US, the Middle East, or Asia, where they find more business-friendly policies.As Europe tries to keep pace with AI development, the need for energy-intensive infrastructure grows, and electricity demand increases, making this tension harder to ignore. New renewable energy capacity was meant to replace polluting energy sources, but concerns are emerging that this transition may not happen as planned.Paul Jackson, regional global market strategist at Invesco, told CNBC, “You can see in the U.K. that we’re already rowing back on some of our commitments.” He predicts Europe may also join that bandwagon. “This is a fairly regular process that, when times are good, it’s easy to persuade individuals, businesses, and governments to move in the right direction on things like climate change and to take some of the cost associated with doing that,” Jackson added.However, when lawmakers face difficult economic conditions and conflicting priorities, lowering the importance of climate policies becomes one of the simplest actions they can take, he added.The UK has eliminated coal from its energy grid, which is much more polluting than gas, but Europe has not yet achieved this.“I’m worried that, at a certain stage, coal power plant closures might get actually postponed,” Jags Walia, head of global listed infrastructure at Van Lanschot Kempen, said to CNBC.Replacing fossil-fuel power plants with renewable energy sources works well when energy demand remains steady, but that is no longer the case, he said.