BERLIN, Jan 8 (Reuters) - Germany's small and medium-sized companies, collectively known as the Mittelstand, are putting the brakes on artificial intelligence investment, a study showed, even as overall corporate spending on AI applications rises.

In a survey of 200 Mittelstand firms published on Thursday, management consultancy Horvath found these companies spent 0.35% of their revenues on AI technologies in 2025, down from 0.41% in 2024.

By contrast, average AI spending across all companies increased to 0.5% of revenues in 2025 from 0.40% a year earlier, widening a gap that Horvath said leaves the Mittelstand investing about 30% below the overall market.

"Geopolitical tensions have unsettled many mid-sized companies and shifted their focus toward cost optimisation," said Heiko Fink, the study lead and a member of Horvath's management board.

He added that early AI use cases may not have delivered the efficiency gains companies had hoped for.

"If AI transformation is not massively accelerated now, the technology gap will develop into an existential strategic risk," Fink said.

The report said bureaucratic hurdles and slow progress on digitalisation are weighing heavily on the ability of mid-sized firms to implement AI, while concerns about data protection and digital sovereignty are also holding back deployment.

(Reporting by Maria MartinezEditing by Madeline Chambers)