Germany has signed an artificial intelligence partnership with US chipmaker Nvidia, as Chancellor Friedrich Merz urged manufacturers across the country to embrace the technology and put their industrial data to work, warning that Europe's largest economy risks falling behind foreign competitors if it fails to adapt.

The agreement was announced at the opening of the Invest in Germany Summit in Berlin, held at Kraftwerk, a former power station. Merz met with Nvidia founder and CEO Jensen Huang at the event, where Germany's economy ministry and the Federal Ministry for Research, Technology and Space joined the chancellor in signing a Joint Declaration of Intent with the chipmaker, according to Nvidia's blog post.

The partnership will focus on bringing AI into Germany's industrial sector. Nvidia said the two sides plan to develop "physical AI" models capable of operating robots, industrial machinery and vehicles — an area that plays directly to the machinery and automation expertise for which Germany is known.

Merz's pitch to the Mittelstand

Merz wants Germany to lead the world in applying AI to industry, betting that the country's manufacturing and engineering base can keep it globally competitive. That ambition comes even as automakers, chemical producers and engineering firms face mounting economic pressure and intensifying competition from abroad. Nvidia's chips are widely used to train and run AI systems around the world, which gives the chipmaker's commitment to German industry particular weight.

The chancellor also sees the Mittelstand — Germany's network of small and medium-sized businesses long considered the backbone of the economy — as a key advantage in the AI race. He urged these companies to make their data available to AI systems, arguing that putting their existing information to work could strengthen their competitive edge, according to Nvidia's account.

Huang argued that AI would build on Germany's industrial know-how rather than displace it. Decades of accumulated expertise remain a competitive strength for German businesses, he added, and AI can help workers put that knowledge to even greater use, countering the belief that the technology would render their skills obsolete.

Nvidia's startup bets and the Siemens connection

Nvidia plans to back four German startups spanning robotics, healthcare, audio generation and space technology. The list includes Munich-based Agile Robots and Avelios Medical, which develops hospital software, as well as audio-generation company Mirelo and Berlin-based satellite maker Reflex Aerospace.

The investments form part of Nvidia's plan to commit nearly $10 billion across Europe. Germany has already received a significant share of that spending, with the chipmaker putting close to $1 billion into the country last year, Yahoo Finance reported, citing DPA.

Siemens is another key element of Nvidia's push to bring AI into German industry, with the two companies agreeing to work together on AI-powered factories. Nvidia pointed to Siemens' Erlangen plant as an example of AI's potential industrial gains, stating that virtual production increases can slash engineering work by up to 85%, while AI-driven planning could potentially lower costs by as much as 20%.

The chipmaker also highlighted work at Jülich's JUPITER, Europe's largest supercomputer, as a separate example of Germany's role in advancing computing research. Nvidia researchers used JUPITER to simulate a fault-tolerant quantum computer with 104 qubits, and the company said the work marks the largest simulation of its kind to date.

Regulation and the numbers involved

Merz called for rules to be set at the European level, ideally with global standards to follow, heise online reported. He also pointed to an exemption for machines under the EU AI Act, the bloc's landmark AI legislation, though heise noted that he was still an opposition leader in the Bundestag when negotiations took place in 2023.

Huang, meanwhile, argued that regulation should focus on how AI is applied, and not just on how to restrict the technology itself.

The "Made for Germany" initiative, a group of about 150 companies and investors led by Siemens and Deutsche Bank, estimates that up to €4.1 trillion ($4.6 trillion) could be directed toward AI, energy and defense projects in Germany by 2035, according to Reuters.

The government's list of participating firms included Mercedes-Benz, Bayer, Lufthansa, Deutsche Telekom, BlackRock and Goldman Sachs.

The two-day summit is set to conclude today, with Huang scheduled to deliver a keynote tomorrow at Nvidia's GTC Berlin conference, part of the chipmaker's global series of AI-focused events.