This paper provides new evidence on how the adoption of artificial intelligence (AI) affects productivity and employment in Europe. Using matched EIBIS-ORBIS data on more than 12,000 non-financial firms in the European Union (EU) and United States (US), we instrument the adoption of AI by EU firms by assigning the adoption rates of US peers to isolate exogenous technological exposure. Our results show that AI adoption increases the level of labor productivity by 4%. Productivity gains are due