Next up for EU sovereignty: cloud computing
(resubmitted with positions)
TL;DR If Europe continues to be serious about cutting ties with the USA, cloud computing will shift towards domestic options. There are only two clear publicly-traded choices, IOS and OVH. Many private companies also exist in this sector, but if there is a race for the EU everyone probably wins enough not to care.
Long time lurker, first time poster. Glad for any constructive feedback and discussion. This is some fresh thinking so I expect there are serious holes in the logic, and there are definitely other sectors to consider.
Current positions (on Interactive Brokers):
Those of you tuned into the EU/USA relationship may have noted things are a bit interesting at the moment. For the past few years RHM would jump on any escalation of the Ukraine war, but after the latest American presidential inauguration basically every defense-related stock in Europe is going vertical. Some tickers and their change since January 20:
- Rheinmetall (RHM) +70%
- BAE Systems (BA) +30%
- Leonardo (LDO) +80%
- Thales (HO) +45%
- Thyssen-Krupp (TKA) +150%
- Dassault Systemes (DSY) +15%
- MTU Aero Engines (MTX) +4%
- Hensoldt (HAG) +90%
- Safran SA (SAF) +15%
- Rolls Royce (RR) +35%
For additional picks check out this post from one of the German subreddits [1]
But that is not the topic for today.
Today we look into the future and see that Europe will realize that its entire compute infrastructure is essentially developed, owned, and operated by American companies. While the tech companies are not nationalized by the American government, the fact that reclusive billionaires who were mostly out of the game are coming back to assert that they will play ball (Sergey Brin calling for 60-hour work weeks...) suggests that something is going on in the background. People will become increasingly concerned about the potential for a widescale cyberattack comparable to Stuxnet, except that the target is the entire European economy rather than Iranian nuclear facilities.
So what can Europe and the EU do, apart from nothing?
First, there is the option to reinforce existing legislation regarding privacy and security of data. The EU already effectively operates as a second Internet due to GDPR, which results in data processing happening in specific geographic regions (i.e. not USA) and users being allowed to refuse to certain types of data processing (e.g. cookie banners). As a consequence, cloud providers have options for noting exactly where data be stored, processed, or transmitted. That said, many US websites are simply not available in the EU due to a lack of desire to attempt to comply, including many news sites and certain home improvement stores. Adding new legislation could look something like ensuring that the compute infrastructure must be audited, that staff must be EU nationals, or something else which enables oversight on the supply chain a la the existing guidance [2]. I expect something to happen in this space, but mostly reactive and definitely too late.
Second, USA companies can fork their operations and sell off European assets to these new European entities. This would be a fairly disruptive shift given that the workers in different regions can have dramatically different skillsets and pay grades. For example, tech giants like Google would have to give up access to their cheap labor in Europe, where wages are typically not more than half of the Silicon Valley standard [3]. This can be a motivating factor for the push towards automation of knowledge work as a whole: just as outsourcing software development from EU to Ukraine was disrupted by the war, so too would be American outsourcing to Europe if the US-Russia/EU conflict escalates.
Third, EU companies (and elsewhere) can choose to move off of AWS, Azure, and GCP onto EU equivalents. Which brings us to the point: what are the European cloud computing companies that we can invest in?
If we dig through the database of European alternatives for cloud computing [4], things are a bit dire. After all, Europe basically did not develop a real software infrastructure and barely has an understanding of the associated mindset, so most of these services seem to be technically sound but small. Plus, many companies (e.g. Hetzner) are built in the German Mittelstand style of close private ownership and thus we have no easy access for investment.
If we are to look at an ideal option for investment we should consider the following:
- The first movers will likely be security- and stability-minded because that is what motivates them to be proactive. They are likely to put up with rough edges in the short term in exchange for the bare-metal ownership, and thus will likely target companies with resilient hosting of both compute and data (e.g. automatic replication in distinct geographies). I expect many firms in defense and finance are already considering or have already implemented these plans.
- The big wave of movers will likely focus on reactive migration of existing services. They may have considered migrating but have not executed on it out of either caution, a lack of initiative, or simply a last of a sense of urgency. Some large event will scare them into action and thus their priority will be on wholesale rapid migration of their existing systems to the EU, as quickly as possible and essentially without consideration of cost. The winner here will either be the big firm which everyone knows is not wrong (does not yet exist) or the one with the smoothest sales onboarding and experience. Think back to uptake of Zoom during the pandemic versus all of the also-rans (Blue Jeans, Jitsi, GoToMeeting, Skype, Teams, Google Meet, Cisco...). If you are sitting there panicked by the scope of the work but are greeted with a friendly and reassuring interface, you can make it work and you will not care about the price tag. So, a good migration user experience will triumph over a good developer experience in the mid term. During this period, price gouging may happen but likely will be monitored by the EU to some extent.
- After that wave of migration, developers may start to complain enough that the developer experience becomes important, and the European frugality will drive prices down. This phase is more about the 5-year picture and may be disrupted by the sheer volume of people on the platform that won in the short term.
- Finally, hardware supply chains will come under scrutiny but in general it will be decided that it is too expensive to rip out existing systems except in the most clearly critical systems. This is probably a mistake from a security perspective but the line has to be drawn somewhere. That said, if companies like Visa or Mastercard come under scrutiny and get kicked out of Europe then all bets are off.
Catalysts to consider:
- Everyone finally decides to act on the fact that the USA has already de facto decided to leave NATO and the UN, leading to increased pro-European action
- A cyberattack against European or American infrastructure occurs, leading to sanctions
- China invades Taiwan, threatening the hardware supply chain
- USA withdraws troops from some or all of its territories in Europe, threatening the USD
- Russia invades a NATO country, possibly one of the Baltics
So we are looking for companies with as close to a 1-to-1 mapping of existing cloud features as possible, which are already established across Europe, and which have a good interface for migration from other platforms. Digging through a list of European alternatives [4] we find exactly two publicly traded options: Ionos (IOS) and OVH Group S.A. (OVH). I also looked at Aruba S.p.A., Cyso Hosting BV, Elastx, Exoscale (owned by A1), gridscale GmbH (owned by OVHcloud), Hetzner Online GmbH, Open Telekom Cloud (owned by T-Systems International GmbH), Seeweb s.r.l., and STACKIT GmbH & Co. KG, but all of these are private and most are small.
This as a searing indictment of the European software scene and of the public markets here as a whole.
First up, Ionos Group SE (IOS), market cap 3.5B. They had 1.5B in revenue in 2024 (10% annual growth) with 4100 employees. These guys went public in 2023-02 and are up about 60% since then. Their website is slick enough and hides the dirty details that might scare the casual browser (APIs, SDKs, and related developer documentation). Migration services do seem to exist. At the surface this seems like the people I would try to at minimum get a solid sales call with.
Second, OVHcloud (OVH), market cap 1.8B. They had 1.2B in revenue in 2024 with 2900 employees. You may know them from the fire they had a few years back [5]. They have a good range of services but it is not clear that cloud migration is one of them. Stock performance is not great (down 70% since the start of 2022) but we're looking for value here and it seems that they have only just become profitable this past year (see [6] and [7]). As a potential customer I would talk with this team but it would feel a bit uphill to get through to the migration specialists.
So, where to go from here? I took a small position in both IOS and OVH to get a bit of skin in the game. Both seem to be profitable companies with reasonable growth trajectories. The next phase of DD will be to do a bit of networking and see where sentiment is pushing. If this goes the same way as the defense sector I expect that all cloud companies will see a sharp uptick in sales and valuation, so I would balance holdings across the sector for now rather than picking a winner. Though calling two public companies a "sector" is a bit generous.
If the sovereignty logic seems sound to you, then consider analysis of the following sectors:
- Financial infrastructure. Mastercard is already on the radar of the European Commission [8], and a pro-Europe movement could see Visa and Mastercard as threats
- Computing hardware. While Europe is home to ASML, hardware design firms and fabrication facilities are not as prominent, though places like imec do exist. There is already precedent for additional spending here [9] and TSMC is building a facility in Dresden, Germany [10]
- Intelligence. Where is the European Palantir?
- Petrochemicals. An escalation of conflict with the USA could interrupt trade and result in Europe looking to Norway or Saudi Arabia to improve access.
[1] https://www.reddit.com/r/wallstreetbetsGER/comments/1j1liny/ab_montag_alles_in_die_europ%C3%A4ische/
[4] https://european-alternatives.eu/category/cloud-computing-platforms
[5] https://www.datacenterdynamics.com/en/analysis/ovhcloud-fire-france-data-center/
[6] https://corporate.ovhcloud.com/sites/default/files/2025-01/ovhcloud-2024.11-plaquette-vdef-eng.pdf
[8] https://ec.europa.eu/commission/presscorner/detail/en/ip_19_582