Leading cloud providers who fail to adapt face substantial revenue losses as the global trend towards sovereign cloud intensifies and clients prioritize moving workloads to local providers, a practice dubbed “geopatriation.”
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This year, European companies are projected to nearly double their expenditure on sovereign cloud Infrastructure as a Service (IaaS), driven by geopolitical tensions prompting a reassessment of their reliance on major US cloud providers.
Investments by European entities in sovereign IaaS are forecasted to surge from $6.9 billion in 2025 to $12.6 billion in 2026, marking an 83% increase, according to a Gartner forecast released on Monday. This figure is expected to almost double again by 2027, reaching $23.1 billion, as geopolitical uncertainties persist.
This trend isn’t limited to Europe; globally, businesses are anticipated to allocate $80.4 billion to sovereign cloud IaaS this year, with this sum rising to $110 billion by 2027, Gartner states. Public sector organizations will account for the largest share of this demand, followed by highly regulated sectors and essential infrastructure providers like energy and telecommunications.
While digital sovereignty has long been a topic of discussion in Europe, concerns regarding reliance on US cloud providers – who dominate the European cloud market – have escalated significantly due to increasing friction in the US-Europe relationship.
Rene Buest, senior director analyst at Gartner, noted that “What began in ’25 is now extending into ’26,” highlighting the continued apprehension among European organizations about how political shifts could impact the IT and digital landscape.
Many European entities fear potential interruptions to essential cloud services due to political factors – a situation exemplified by the events involving senior personnel at the International Criminal Court last year.
Additionally, some perceive investment in sovereign cloud offerings as a means to foster the local cloud provider ecosystem. According to Buest, an increasing number of European organizations are pledging to dedicate a specific portion of their annual revenue to domestic IT providers.
However, Buest clarified that a complete withdrawal from existing providers is neither anticipated nor practical. This is primarily because fully detaching from current services is prohibitively expensive and complex for most organizations, regardless of their desire to do so.
Consequently, Gartner reports that a significant portion (80%) of the projected increase in sovereign cloud IaaS spending will be directed towards either new applications or the migration of older on-premise workloads/applications originally planned for hyperscalers.
Nonetheless, a degree of “geopatriation” – the relocation of workloads to domestic providers – is expected. Gartner predicts that by 2029, businesses worldwide will shift 20% of their current workloads from hyperscalers’ clouds to local cloud providers due to sovereignty concerns. (This percentage is slightly higher within Europe.)
Such scenarios could manifest in various ways: a bank might migrate its core banking systems from a hyperscaler, or a SaaS provider might opt to host its operations on local infrastructure.
While this trend presents a challenge for hyperscalers, Gartner indicates that US-owned sovereign cloud services are still expected to capture a portion of this reallocated IaaS spending, even though local providers are likely to be the primary beneficiaries.
US-based IaaS vendors have actively developed and launched “sovereign” cloud services, positioning them as viable alternatives for European clientele.
However, questions persist regarding the true extent of sovereignty offered by these hyperscaler-owned services.
Consider AWS’s European Sovereign Cloud (ESC), for example, which debuted in Germany last month. Its data center is operated by European residents and citizens and is technically distinct from broader public cloud infrastructures. It also functions under a German-incorporated subsidiary. Nevertheless, it remains part of AWS, a US-owned corporation subject to US laws like the Cloud Act or Foreign Intelligence Surveillance Act.
Google, Microsoft, and Oracle similarly market their cloud services as sovereign.
A more effective strategy for US hyperscalers might involve forming partnerships with local providers. Several such collaborations are already underway. For instance, Google licenses its technology to S3NS, a French subsidiary of Thales, while Bleu, a joint venture between Capgemini and Orange, leverages Microsoft technology.
These cooperative arrangements do not achieve full sovereignty, as they still rely on software updates from a US technology provider, for example. Yet, they mitigate concerns about ownership and the potential for a “kill switch” mechanism.
Buest emphasized that hyperscalers err by treating digital sovereignty solely as a matter of security, regulation, or compliance. He warned, “This is a misstep they are making, and as a consequence, they will also forfeit market share.”
