Global geopolitical uncertainty, trade tensions, and national security concerns are fueling the debate over digital sovereignty as well as the market growth for sovereign cloud services and demand by enterprises for secure, local access to the latest AI tools.
The public cloud has ushered in unprecedented benefits for businesses and governments in terms of data access and data flows. But in uncertain geopolitical times, sensitive data — including government classified information and data generated by regulated industries — requires special protection.
As SAP CEO Christian Klein noted recently in an interview with the Financial Times, these concerns have fueled customer anxiety over cloud infrastructure choices and boosted the concept of “sovereign” data centers, where information remains within national borders.
Sovereign clouds
Historically, governments, government agencies, and a select group of private sector organizations in sensitive areas, including defense and public utilities, led the demand for sovereign clouds. Technology companies, including SAP, have responded by providing highly secure sovereign cloud services.
But in recent months the debate over digital sovereignty has widened. As Hayete Gallot, Google’s president of Customer Experience, recently noted, “Sovereignty used to be a very niche thing that applied to very regulated industries, such as defense and intelligence, and suddenly in the current environment, everybody is thinking about it.”
The EU has proposed spending €20 billion to build five “gigafactories” to facilitate digital sovereignty and help Europe compete more effectively in AI against the predominantly U.S.-based hyperscalers and large language models (LLMs). But others, including Klein, are not convinced that it makes sense to replicate the physical infrastructure built by hyperscalers and others.
The data center hardware race is over
Klein argues that spending billions in government funding in the EU on huge new data centers would be misguided, and that European companies already have control and sovereignty over their own data. “The hardware train has left [the station],” he said. Together with other senior SAP executives, he also argues that digital sovereignty is about more than physical infrastructure — the operational, technical, and legal dimensions of data sovereignty matter just as much.
Crucially, SAP Sovereign Cloud offers a model that keeps customer data within national borders and in compliance with local laws, without the need to replicate the existing physical infrastructure. Its services, developed over the past 20 years, are already provided to some of the most security-sensitive organizations in the world, including those in the U.S. through SAP National Security Services (SAP NS2).
Sovereign cloud customers
The SAP Sovereign Cloud organization already counts more than 170 customers globally and has plans to invest a further €2 billion over the next decade to expand regional coverage. For example, SAP is currently in talks with four Asian countries. In Germany, the unit provides secure sovereign cloud services through Delos Cloud and plans to launch similar services in France through Bleu.
Instead of getting involved in a futile race to catch up with the U.S., SAP executives argue that Europe must now promote the use of vertical AI for individual industries and special areas of application.
In a recent guest commentary in the German business newspaper Handelsblatt, Klein called for a digital strategy for Europe that builds on the region’s digital strengths: “A new, European-defined concept of sovereignty is necessary, one that relies on self-determination rather than self-sufficiency.” He also cautioned that digital sovereignty “is not an end in itself” and called for “profound change” to industry business models.
These models “need to be rethought, processes digitized, and AI used in a targeted manner for more innovation, for greater efficiency, for sustainability,” he added.
Martin Merz, president SAP Sovereign Cloud, agrees. “The debate around digital sovereignty in Europe has gone on too long with too many buzzwords and too little substance,” he said. “We’ve reached a point where Europe can no longer afford misguided discussions. What counts is value creation. Real sovereignty includes empowering people, industries, and governments to lead through innovation.”
“When it comes to highly sensitive data, SAP Sovereign Cloud comes in,” Merz continued. “It’s purpose-built to protect the most sensitive, security-critical data, enabling the highest level of protection and operational autonomy, without slowing down innovation.”
Locally hosted AI
Underscoring this shift in the data sovereignty debate, many SAP customers are now talking about sovereign AI or what SAP calls “locally hosted AI.” To help facilitate this, SAP CTO Philipp Herzig recently noted that the company is now offering a range of self-hosted AI models in a more secure and local environment. “Starting Q3 this year, we are providing the entire AI foundation end-to-end out of European data centers. This is AI fully managed and operated by SAP,” he shared.
As a result, he said, customers will have access to cutting-edge local models like Mistral Small and Mistral Medium, Aleph Alpha, or the T-Free model used by the German government. “Their data will remain local, trusted, compliant, and secure, and seamlessly integrate with SAP Business AI capabilities without compromising on performance, governance, or privacy,” Herzig added.
He also revealed that Swiss Federal Railways is leading the way as an early adopter, using locally hosted AI with Mistral AI to power innovation in a trusted environment. Speaking during a recent NVIDIA conference in France, he also announced that SAP has formed a strategic partnership with Mistral AI and Capgemini to accelerate AI adoption across Europe.
“Together, we’re building the future of enterprise AI – secure, local, and smart,” Herzig said.
