Energy costs are fast becoming the decisive factor in which countries lead the global artificial intelligence race, according to Microsoft CEO Satya Nadella, who warned that cheap, reliable power will increasingly determine whether AI translates into real economic growth or remains an expensive technological promise.

Speaking at the World Economic Forum in Davos on Tuesday, Nadella framed AI not just as a software or innovation challenge, but as an economic system built on a new global commodity: “tokens,” the basic units of computation that power modern AI models. In his view, the ability of nations and companies to convert these tokens into productivity, growth, and competitiveness will hinge directly on the price of energy.

“GDP growth in any place will be directly correlated to the cost of energy in using AI,” Nadella said, arguing that economies with cheaper energy effectively enjoy a structural advantage. “The job of every economy and every firm is to translate these tokens into economic growth. If you have a cheaper commodity, it’s better.”

That framing highlights a critical shift in how AI leadership is being contested. The focus is no longer only on who has the best models or the most data, but on who can operate AI at scale at the lowest total cost. Energy, alongside silicon and data center construction, now sits at the heart of that equation.

Hyperscalers, such as Microsoft, Amazon, and Google, are already reshaping global infrastructure around this reality. Microsoft said at the start of 2025 that it expects to spend about $80 billion on AI data centers this year alone, with roughly half of that investment taking place outside the United States. The scale of that spending underlines how energy availability and pricing are influencing where AI capacity is built.

Nadella stressed that the total cost of ownership, rather than headline electricity prices alone, will determine competitiveness. That includes whether countries can generate energy cheaply, whether they can permit and build data centers quickly, and how efficiently advanced chips can be deployed within those facilities.

“It’s not just the production side,” he said. “Are you a cheap producer of energy? Can you build the data centers? What’s the cost curve of the silicon in the system?”

This calculus has major implications for Europe, which currently faces some of the highest energy costs in the world. Prices surged after Russia’s full-scale invasion of Ukraine in 2022 and the subsequent reshaping of European energy markets. While prices have since eased from their peaks, they remain structurally higher than in the United States or parts of Asia, raising questions about Europe’s ability to host large-scale AI infrastructure competitively.

Beyond cost, Nadella also raised a political and social constraint that could shape AI deployment. He warned that public acceptance of AI-driven energy use is not guaranteed, especially as power grids come under strain.

“We will quickly lose even the social permission to actually take something like energy, which is a scarce resource, and use it to generate these tokens, if these tokens are not improving health outcomes, education outcomes, public sector efficiency, private sector competitiveness across all sectors,” he said.

That comment reflects a growing tension between AI expansion and energy sustainability. As data centers consume increasing amounts of electricity, governments and voters are likely to demand clearer economic and social returns from that consumption. AI projects that fail to demonstrate tangible benefits may face political resistance, stricter regulation, or limits on power allocation.

Nadella’s critique of Europe went beyond energy costs to what he described as a narrow inward focus. He argued that European competitiveness in the AI era cannot be built around regional protectionism or sovereignty alone, but must be measured by the global relevance of its output.

“European competitiveness is about the competitiveness of their output globally, not just in Europe,” he said.

He linked Europe’s historical prosperity to its ability, over centuries, to produce goods and services the rest of the world wanted. In his view, replicating that success in the AI age requires investment not only in regulation and governance, but in the physical inputs of AI: energy, compute capacity, and scalable infrastructure.

Nadella also pushed back against what he sees as an overemphasis on technological sovereignty. “Whenever we come to Europe, everyone’s talking about sovereignty,” he said, adding that access to markets and customers may matter more than insulating domestic industries.

Protecting Europe, he suggested, will not automatically make it competitive if its AI-powered products cannot succeed globally.

In summary, Nadella’s remarks underline a broader shift in the AI debate. Leadership is no longer defined solely by research breakthroughs or startup ecosystems, but by industrial fundamentals: energy pricing, infrastructure speed, capital deployment, and public legitimacy. Countries that can align these factors may find themselves converting AI tokens into sustained economic growth, while others risk being priced out of the race, regardless of their technical ambitions.

As the prospect of a renewed U.S.–Europe trade war sharpens, the International Monetary Fund has delivered one of its bluntest assessments yet of Europe’s economic position, warning that the continent risks entering a volatile geopolitical phase without the economic cohesion needed to defend its interests.

Speaking at the World Economic Forum in Davos, IMF Managing Director Kristalina Georgieva urged European leaders to move faster on long-delayed reforms, arguing that the continent’s internal weaknesses are leaving it exposed just as U.S. President Donald Trump escalates trade pressure on long-standing allies.

Her remarks came days after Trump announced plans to impose escalating tariffs on imports from eight European countries — Denmark, Norway, Sweden, France, Germany, the United Kingdom, the Netherlands and Finland — unless Washington is allowed to acquire Greenland, an autonomous Danish territory. Under Trump’s plan, tariffs would begin at 10% on February 1 and rise to 25% by June 1 if no agreement is reached.

The threat has injected fresh uncertainty into transatlantic relations, already strained by disputes over trade, defense spending and industrial policy. It has also revived concerns that tariffs are again becoming a central tool of U.S. foreign policy, applied not only to rivals but also to allies.

Against that backdrop, Georgieva’s message to Europe was stark. “Europeans, if you’re watching, get your act together,” she said, arguing that the continent is failing to fully use its economic weight at a time when power politics are reshaping global trade.

According to the IMF chief, Europe’s challenge is not simply external pressure from Washington but deep-seated structural problems that have lingered for years. She pointed to weak productivity growth, fragmented capital markets and persistent barriers that prevent small firms from scaling into global champions.

“Europe has fallen behind in productivity. Europe has fallen behind in getting small companies to grow to giants,” Georgieva said, warning that these shortcomings are eroding Europe’s competitiveness relative to the United States and parts of Asia.

She outlined four priorities she said are essential if Europe is to regain momentum and credibility. The first is completing the capital markets union, which would allow savings to flow more easily into productive investment across the bloc. Georgieva noted that around 300 billion euros of European savings are currently invested in the United States, capital that could otherwise be funding innovation and expansion at home.

The second is completing the energy union. High and uneven energy costs, exacerbated by geopolitical tensions and the transition away from Russian gas, have left European industry at a disadvantage. Georgieva said it is impossible for Europe to compete globally while operating what are effectively 27 separate energy systems.

Third, she highlighted labor mobility. While free movement is a core EU principle, practical barriers still prevent workers from easily taking jobs across borders.

“You cross the border from Germany to France, you can’t work there,” she said, arguing that this rigidity undermines growth and limits firms’ ability to find talent.

Finally, Georgieva stressed the need for sustained investment in research and innovation, warning that Europe risks falling further behind in key technologies if it does not move faster.

Her comments reflect a growing sense among international institutions that Europe’s economic model, while resilient, is struggling to adapt to a more confrontational and fragmented global environment.

European leaders have reacted angrily to Trump’s tariff threats. Several governments have described the measures as unacceptable and have called for dialogue rather than escalation. France is reportedly pushing for the European Union to consider deploying its Anti-Coercion Instrument, the bloc’s strongest trade defense mechanism, which would allow it to retaliate against countries that use economic pressure for political ends.

European Commission President Ursula von der Leyen used her Davos keynote to frame the moment as a turning point. She said Europe can no longer rely on the assumptions of the old global order and must be prepared to stand on its own as geopolitical shocks become more frequent.

“If this change is permanent, then Europe must change permanently too,” von der Leyen said, calling for the construction of what she described as a “new independent Europe.”

While she did not explicitly endorse retaliation, her remarks underscored a growing willingness in Brussels to consider a more assertive stance.

Trump, meanwhile, said he had agreed to meet European officials in Davos to discuss his Greenland ambitions, even as leaders in Denmark and Greenland have repeatedly said the territory is not for sale. The issue has raised alarm within Europe, where officials warn that linking trade penalties to territorial demands could set a dangerous precedent and strain NATO unity.

Despite the rising tensions, the IMF is urging caution. Georgieva noted that the Fund had slightly upgraded its global growth forecasts this week, projecting growth of 3.3% this year and 3.2% in 2027. One reason, she said, is that the economic damage from tariffs has so far been less severe than many feared, largely because governments avoided full-scale retaliation.

“There was no tit for tat trade war,” she said, adding that this restraint helped prevent last year’s tariff threats from tipping major economies into recession.

She urged policymakers and markets alike to remain calm, arguing that economic rationale has so far prevailed over political impulses.

Still, Georgieva’s warning carried a clear subtext. As countries increasingly weigh the strategic use of trade tools, Europe’s ability to protect itself will depend less on rhetoric and more on whether it can finally deliver long-promised reforms. Without deeper integration and stronger competitiveness, she suggested, Europe risks entering a more hostile global era from a position of relative weakness.

U.S. equity markets opened the week on a sharply lower note on Tuesday, with technology shares bearing the brunt of investor unease over President Donald Trump’s escalating rhetoric on acquiring Greenland and his threats of punitive tariffs against European allies.

The sell-off reflected broader concerns about renewed transatlantic trade tensions, just as global leaders converged on Davos, Switzerland, for the World Economic Forum. The State Street Technology Select Sector SPDR ETF (XLK) declined 1%, while major tech names posted steeper losses. Nvidia and Tesla each tumbled nearly 3%, with Meta Platforms, Alphabet, Apple, Microsoft, and Amazon all shedding more than 1%. Broader indexes followed suit: the Nasdaq Composite closed down 1.3%, underperforming the S&P 500’s 1.1% drop and the Dow Jones Industrial Average’s 0.9% decline.

The catalyst came from Trump’s Truth Social posts over the weekend, where he reiterated his long-standing interest in U.S. control of Greenland—an autonomous Danish territory he views as strategically vital for national security, Arctic defense, and countering influence from China and Russia.

In a lengthy January 17 post, Trump announced plans for a 10% tariff on goods from eight European nations—Denmark, Norway, Sweden, France, Germany, the United Kingdom, the Netherlands, and Finland—effective February 1, escalating to 25% on June 1. He tied the levies directly to negotiations for a “Complete and Total purchase” of Greenland, framing the move as essential for “Global Peace and Security.”

Trump doubled down on Tuesday with a flurry of posts, sharing what appeared to be private messages from leaders like French President Emmanuel Macron, mocking allies, and insisting “there can be no going back” on his ambitions. He even posted edited images depicting Greenland and parts of Canada under U.S. flags, while refusing to rule out forceful options if diplomacy fails.

European leaders responded with alarm. EU Commission President Ursula von der Leyen called the tariff threats a “mistake” that undermines trust between allies. French President Emmanuel Macron warned of a potential shift to a “world without rules” and signaled readiness to activate the EU’s anti-coercion instrument—a so-called “trade bazooka”—for retaliatory measures worth billions.

Belgian Prime Minister Bart De Wever declared that “so many red lines have been crossed,” while others in Davos urged compartmentalizing the Greenland dispute from broader trade talks. U.S. Trade Representative Jamieson Greer, speaking at Davos, suggested the threats were tactical to “set the scene” for negotiations, downplaying immediate escalation.

Treasury Secretary Scott Bessent brushed off market “hysteria,” but investors remained skittish, with the CBOE Volatility Index (VIX) spiking to levels not seen in recent months.

The renewed focus on tariffs revives memories of trade frictions from Trump’s first term, now complicated by Greenland’s strategic importance amid melting Arctic ice and great-power competition. Analysts note that any broad tariffs could disrupt supply chains for U.S. tech firms reliant on European components, markets, or partnerships, amplifying the “risk-off” sentiment hitting AI and growth stocks hardest.

Yet not all voices were bearish. Wedbush Securities analyst Dan Ives, attending Davos, framed the dip as a classic buying opportunity.

“Tech stocks will be hit as the ‘risk off dynamic’ hits AI names front and center but ultimately we view this as an opportunity to own the tech winners for 2026 and beyond,” Ives wrote in a note to clients.

He dismissed the geopolitical “soap opera” as temporary noise, arguing that the AI revolution remains in its early innings and unaffected by short-term trade spats.

Ives pointed to an impending catalyst: a “robust” fourth-quarter earnings season from tech giants, fueled by an estimated $550 billion in capital expenditures dedicated to AI infrastructure. He recommended accumulating shares on weakness in names like Nvidia, Microsoft, Palantir, CrowdStrike, Nebius, Apple, Palo Alto Networks, Alphabet (Google), and Tesla—stocks he sees as core beneficiaries of the ongoing “4th Industrial Revolution.”

While the tariff threats contributed to Tuesday’s losses, tech had already shown signs of rotation fatigue earlier in January, with the “Magnificent Seven” group underperforming amid valuation concerns. The pullback erased recent gains and pushed some indexes into negative territory for the year so far.

As Davos proceedings continue—with Trump scheduled to address attendees on Wednesday—investors will monitor for any de-escalation signals. European retaliation threats and potential Supreme Court scrutiny of tariff authority loom as additional risks.

Treasury Secretary Scott Bessent on Tuesday urged Federal Reserve Chair Jerome Powell to stay away from upcoming Supreme Court arguments tied to President Donald Trump’s effort to remove one of the central bank’s governors, warning that Powell’s presence could further politicize an already volatile dispute over the Fed’s independence.

Speaking to CNBC’s Joe Kernen on the sidelines of the World Economic Forum in Davos, Bessent said Powell attending the oral arguments would be a misstep at a time when the central bank is under intense political scrutiny.

“I actually think that’s a mistake,” Bessent said. “If you’re trying not to politicize the Fed, for the Fed chair to be sitting there trying to put his thumb on the scale, that’s a mistake.”

The comments follow a CNBC report that Powell plans to attend Supreme Court arguments in a case challenging Trump’s authority to fire Federal Reserve governor Lisa Cook. The case has become a flashpoint in a broader confrontation between the White House and the central bank over governance, accountability, and the limits of presidential power.

At the center of the legal fight is Trump’s August announcement that he was firing Cook from the Fed’s Board of Governors over allegations of mortgage fraud. Cook has denied wrongdoing and has remained in her post, setting up a direct constitutional and statutory clash over whether a sitting president can remove a Fed governor outside the narrow “for cause” protections that have historically shielded the central bank from political interference.

The Supreme Court case is widely seen as a potential landmark ruling. A decision affirming broad presidential removal powers could weaken the institutional independence of the Fed, while a ruling against Trump would reinforce long-standing legal precedents that insulate monetary policy from the executive branch.

Economists and legal scholars say the stakes extend far beyond Cook’s tenure. The outcome could reshape how future administrations interact with independent agencies, including the Federal Reserve, the Federal Trade Commission, and other bodies designed to operate at arm’s length from day-to-day politics.

Powell caught in the crossfire

Powell himself has repeatedly been a target of Trump’s criticism. The president has threatened on multiple occasions to fire the Fed chair, accusing him of mismanaging interest rate policy and undermining economic growth. While no president has ever successfully removed a Fed chair over policy disagreements, Trump’s public threats have heightened anxiety in financial markets about the durability of central bank independence.

Bessent’s warning reflects concern that Powell’s physical presence at the Supreme Court could be interpreted as an attempt by the Fed to influence the judiciary, even if Powell does not speak or participate directly.

The controversy has intensified following Powell’s rare video statement earlier this month, in which he disclosed that he is under criminal investigation. Powell said the investigation was unrelated to his testimony to Congress last June or to oversight of the Federal Reserve’s building renovation project, dismissing those issues as “pretexts.”

“This new threat is not about my testimony last June or about the renovation of the Federal Reserve buildings,” Powell said in the January 11 statement. “Those are pretexts.”

Powell’s decision to go public underscored the severity of the pressure he faces and marked an unusual step for a Fed chair, who typically avoids public comment on legal or political disputes.

Markets watching closely

Investors are closely monitoring the unfolding confrontation. Any perception that the Fed’s independence is eroding could unsettle bond markets, weaken confidence in U.S. monetary policy, and complicate the Fed’s ability to anchor inflation expectations.

So far, markets have remained relatively calm, but analysts say that could change quickly if the Supreme Court signals a willingness to revisit long-standing protections for independent agencies.

Analysts believe the major issue hinges on whether the Federal Reserve can continue to operate without fear of political retaliation.

However, Bessent’s intervention highlights the delicate line the Fed must walk: defending its institutional integrity without appearing to insert itself into partisan or legal battles. Whether Powell ultimately attends the Supreme Court arguments or not, the case is shaping up as one of the most consequential tests of central bank independence in decades, with implications that could outlast both the current administration and Powell’s tenure at the Fed.