Smart City: How AI and Digital Twins Are Transforming Cities

What truly makes a city “smart,” and how can Artificial Intelligence make a difference in the daily management of millions of citizens? The growing urban complexity requires data orchestration that enables anticipating problems, optimizing resources and improving public service experience, while reducing environmental impacts and operational costs. The smart city model provides this orchestration, aligning technological investments with quality of life, sustainability and territorial competitiveness objectives.

What is a smart city and how does it work?

A smart city integrates IoT, advanced connectivity, data platforms and AI to make key networks and services such as mobility, energy, environment and digital services more efficient, enabling transparent governance and real-time decisions oriented toward citizens. In Italy, adoption is proceeding at different speeds, but major capitals show concrete signs of maturity and a growing pipeline of high-impact projects. Behind these technological infrastructures is a rapidly evolving market, with investments concentrated on increasingly strategic areas.

The Italian smart city market

According to the synthesis by Intesa Sanpaolo Innovation Center, in 2023 the Italian smart city market exceeded 1 billion euros for the first time, with 11% growth on an annual basis, although slowing compared to 2022 due to the reallocation of priorities related to the PNRR. AI is establishing itself as a cross-cutting enabler: from predictive models for traffic and energy, to digital twins for urban planning, to the automation of citizen services and real-time environmental monitoring. These numbers mark a shift toward more mature and results-oriented adoption.

State of the art in Italy

Bologna, Milan and Turin lead the Smart City Index 2025 by EY, which evaluates 109 capitals on 323 indicators along digital transition, ecological transition and social inclusion, highlighting a growing capacity to orchestrate data and services. The top 10 is completed by Venice, Rome, Trento, Cagliari, Modena, Reggio Emilia and Florence, with performances driven by data platforms, online services and sustainable mobility projects, in line with the investment priorities of recent years.

Why are metropolitan cities advancing more rapidly?

Metropolitan cities are recording an increase in digital readiness, driven by infrastructure and project development, including the Emerging Technologies Centers (CTE) that accelerate experimentation and technology transfer. Bologna excels in social inclusion and digital transition, while Milan and Turin consolidate leadership in widespread innovation and smart services, increasing attractiveness for talent and investments.

Where does AI generate tangible value?

Intelligent mobility: predictive traffic analysis, dynamic traffic light priority and Local Public Transport (TPL) optimization improve travel times and reduce congestion and emissions in metropolitan areas that have activated integrated control rooms and multimodal datasets.
Energy and buildings: continuous consumption monitoring, predictive maintenance and initial experimentation with digital twins on public assets enable savings and more efficient intervention planning.
Environment and quality of life: sensor networks on air, water and waste generate data for predictive models and proactive decisions, with cases of urban tree planting and reforestation integrated into climate strategies like ForestaMi in Milan.

AI projects in Italian cities

Milan is experimenting with the Extended Digital Twin for urban planning and management, with initiatives on MaaS and Smart Parking to enable intermodality and reduce private traffic, in synergy with programs like ForestaMi (three million trees by 2030 to improve air quality). Through Building Information Modeling (BIM), it is now possible to analyze urban dynamics in real time, develop scenarios for infrastructure and service redesign, manage flows and emergencies, and create a digital twin of the city that simulates interventions before their physical implementation. Incubators and testing spaces—such as Smart City Lab and programs on emerging technologies—create bridges between startups, companies and PA to validate AI solutions for mobility, energy and environment before scalability. These examples show that AI is no longer theory: it’s operational. But the real qualitative leap occurs when the physical city finds its digital twin.

Why are digital twins changing urban planning?

Urban digital twins are not simple 3D maps, but dynamic organisms that replicate in real time buildings, infrastructure, services and social behaviors of an urban center, continuously feeding on data from IoT sensors, satellite images and public and private databases. According to the EY Smart City Index 2025, the growth of IoT and sensors in recent years—with a 30% increase in sensor diffusion and 40% in control centers—has made this fusion between physical and digital reality possible.

Bologna represents one of the most advanced cases in Italy: the city has developed an ambitious digital twin that allows simulating impacts of new infrastructure and green areas before their construction, predicting criticalities during weather emergencies, optimizing logistic routes during major events and evaluating benefits of new materials or citizen services. This advanced urban simulation allows political decision-makers and citizens to visualize urban development through shared platforms, engage in strategic choices and monitor policy outcomes transparently.

At the national level, platforms like Snap4City—developed by the DISIT lab of the University of Florence and operational since 2019—represent one of the few examples of comprehensive digital twins present in Italy, adaptable to any geographic area and scalable for different types of urban entities. The global urban digital twin market is in strong expansion, with double-digit growth forecasts in the coming years according to major sector analysis companies.

Metrics and trends 2025

The Smart City Index 2025 records cross-cutting progress, with accelerations in cities that have activated CTE and data orchestration platforms, crucial enablers of end-to-end AI services. Metropolitan cities in the South, including Cagliari, Bari and Palermo, show the most consistent recoveries, associated with greater digital readiness and targeted investments in sensors and control centers.

Italy’s positioning in international comparison

No Italian cities are in the top 50 of major global 2025 rankings, signaling gaps in scale, interoperability and implementation speed compared to European and global benchmarks. To bridge the gap, open standards, robust data governance, internal competencies and reliable AI procurement are needed, with clear KPIs to measure impacts on service times, emissions and user satisfaction.

Responsible AI governance

Effective adoption of Artificial Intelligence in urban contexts requires transparency principles, privacy-by-design and algorithm explainability, with tools such as public algorithm registries, periodic audits and impact assessments on risks and bias to ensure trust and social legitimacy. Interoperable and hybrid cloud-edge architectures, together with techniques like federated learning, help handle sensitive data and real-time use cases while ensuring security, quality and compliance. Digital twins themselves, to function effectively, must respect these principles: the massive collection of urban data raises ethical questions that must be addressed with clear and transparent frameworks to ensure citizen trust and long-term sustainability.

The right time to act

The diffusion of sensors, the maturity of data platforms and the operability of control rooms provide the foundation to scale AI use cases from experimentation to continuous services, maximizing return on public investments. Digital twins, in particular, allow testing virtual solutions while minimizing risks before practical application, reducing error costs and accelerating urban innovation. Aligning urban roadmaps with recognized indicators and measuring results with shared metrics strengthens accountability, continuity and attractiveness for public-private partnerships.

The destination for Italian cities

AI is already a concrete enabler of urban transformation, with measurable impacts on mobility, energy, environment and digital services highlighted by cases and indicators from 2025. Urban digital twins represent the beating heart of the city of the future: open, resilient and in constant dialogue between the real and digital worlds. To compete internationally requires a qualitative leap in interoperability, data governance, competencies and project scalability, transforming experimentation into stable person-oriented services. This is not about chasing a futuristic vision, but about consolidating what works and making it accessible to all citizens, building more livable, resilient and inclusive cities.