Data Sovereignty and Artificial Intelligence Investments in Europe

Europe's Data Sovereignty and Artificial Intelligence Investments

The European Union (EU) and its member states are intensifying their efforts to develop their domestically controlled digital infrastructure. This trend is aligned with growing concerns regarding data privacy, geopolitical risk, and access to computing power. A report published by UBS Global Research indicates that major cloud providers, such as Amazon, Microsoft, and Google, account for more than 80% of Europe's infrastructure services market.

On the other hand, according to Gartner's definition, sovereign cloud services that provide data, operational, and technological control in the European jurisdiction represent only 10% of the market as of 2024. However, Gartner forecasts that this share could rise to 47% by 2028, predicting an annual growth rate of 86%.

In assessments by UBS, it is stated that "managed clouds are 10-20% more expensive than 'public' clouds," yet it is expressed that the adoption of such clouds can be supported by regulations such as the GDPR, EU Data Act, and European Data Governance Act. The EU's proposed Cloud and Artificial Intelligence Development Act stands out as a central element of this strategy. This law aims to triple the block's data center capacity within five to seven years and mobilize 200 billion Euros for artificial intelligence investments.

Among the goals are a fund of 20 billion Euros to build five artificial intelligence “gigafactories,” each containing over 100,000 advanced processors, and a fund of 10 billion Euros for the development of 13 smaller factories with about a quarter of that capacity. UBS estimates that the cost of each gigafactory will be approximately 6-8 billion dollars based on the first phase of Stargate's Abilene project; 35% of this may be subsidized by the EU and member states.

There is a high level of interest among participants in the sector. The European Commission received 76 applications from 16 member states to host artificial intelligence gigafactories, and decisions are expected to be made by the end of 2025. IONOS, a web hosting service provider in Germany, announced its application in collaboration with the construction group HOCHTIEF, stating that their proposal aims to “support large-scale artificial intelligence workloads with a completely sovereign and sustainable ecosystem.”

Deutsche Telekom, the largest telecom operator in Europe, announced plans to partner with SAP, Nvidia, and energy companies like RWE. Additionally, it was noted that the sovereign industrial artificial intelligence cloud launched in Munich has provided a 50% increase in GPU capacity in Germany, operating with 10,000 GPUs.

SAP is cautious regarding direct investment and stated it does not aim to be an operator or investor related to artificial intelligence gigafactories. However, it emphasized that it will continue to contribute as a technology and software provider. Still, it is reported that Delos sovereign cloud now offers 4,000 GPUs for artificial intelligence workloads. The French software company Dassault Systèmes’ Outscale unit participated in the NumSpot project for the public sector alongside Bouygues Telecom and Banque des Territoires, having received the SecNumCloud 3.2 certification.

Given the information provided, it is stated that Europe's sovereign cloud market is still small, with around 4 billion dollars in the regional IaaS market of 37 billion dollars by 2024. However, it is expressed that this growth is accelerating due to the demand for artificial intelligence infrastructure and the impact of new financing frameworks. UBS stated, “Advancements in artificial intelligence have increased the awareness of the strategic value of data,” emphasizing that digital sovereignty is now not only a regulatory issue but also among the industry’s priorities.