CNBC's Arjun Kharpal breaks down the details of the AWS European Sovereign Cloud and competition in Europe's cloud market.

Potsdam

Amazon Web Services (AWS) has introduced its sovereign cloud offering in Germany, designed to comply with European Union regulations requiring data to be stored and managed within European borders. The new AWS sovereign cloud is physically and logically separate from other AWS regions, governed by a European parent company run by EU citizens, and independent of non-EU infrastructure.

The launch comes as Europe pushes for greater local control over cloud infrastructure, though US firms like Amazon, Microsoft, and Google still control about 70% of the regional market. AWS is initially rolling out the service in Belgium, Netherlands, Portugal, and Germany, while local competitors and rising demand for AI infrastructure continue to shape the competitive landscape.

AWS launches its 'sovereign cloud' in Europe

Yeah look this idea of sovereign cloud Steve has been growing in popularity amongst EU politicians and regulators over the last few years and it's this idea that any cloud services that are operating in Europe must store and handle their data here on European soil rather than moving that data outside of Europe as well and you've seen more and more regulation around data around privacy come in that is compelling these foreign tech companies to comply with these sovereign cloud requirements if they want to continue playing in the European market and to that end Amazon has launched this AWS sovereign cloud in Germany and what they say is it's physically and logically separate from its other AWS regions and it's got a very interesting sort of structure in terms of governance it's set up its own parent company in Europe which is run by EU citizens and controlled in the European Union also they say that there's no critical infrastructure that is dependent on non-EU infrastructure as well which is quite key and it's very important here for Amazon because Europe is a very key market Amazon one of the top three players in the market and there's a sense that if it wants to continue to be a part of this market it needs to adopt these sovereign cloud impetuses as well and of course cloud is so key AWS to the broader Amazon business that it wants to try to accelerate cloud in the in the way quite frankly of intense competition from the likes of Microsoft and Google just sort of stepping back for a moment the bigger push really from Europe has been over the last few years to try to get more European companies involved in the cloud computing space the reality is though around 70 percent of the market in Europe is controlled by Amazon Microsoft and Google when it comes to cloud so the the push has has not really been met with a lot of success so far there are a number of questions that do remain around sovereign cloud one of those is one how this is going to contribute to AWS's revenue and profit as well and of course whether there will be any involvement from the US parent company these are questions I'm going to put to Matt Garman who is the CEO of AWS when I speak to him later today so a lot more color to come out in terms of the conversation in terms of around this sovereign cloud push from Amazon for now guys back to you in London Arjun just to that point I was looking at the rollout the sort of countries that have been chosen here for AWS first up the likes of Belgium Netherlands Portugal and of course Germany where you stand interestingly not France and not UK France we know that Mistral AI has been building there and we've seen domestic play and of course Enscal here in the UK the first mover advantage from some of the local players I wonder that whether that's made a difference to how challenging it is for AWS yeah it's a great observation Karen and it certainly played one of the one of the things we've seen I say over the past sort of two three years is the rise of these so-called neo clouds and scale being one of them these are companies effectively buying a ton of NVIDIA chips building huge data centers and I showed in the last hour kind of what those data center complexes look like there are challenges here to the likes of AWS to Amazon to Google from N scale and of course the big deal between Mistral and NVIDIA there are a lot of European countries who would certainly prefer a lot of this infrastructure to be built by European companies or companies who are you know local to those countries the reality is though given the scale the level of investment the deep pockets of US tech Europe does need these players to be in the game in order to build these large data centers and infrastructure because ultimately this is the infrastructure that's pinning this artificial intelligence rollout and of course if enterprises want to adopt this the first place they will go is to a cloud provider who can rent these services effectively out to them so it is important for these big for Europe for these big US players to be involved in the cloud complex but certainly the Europeans are hoping for more and more local players to enter this market and hopefully take up some of that share from the big US players as well. Arjun let me just link it to the picks and shovels because we've had numbers out from TSMC today let's move the needle on ASML, ASMI the markets looking at the incredible AI demand that we've seen when it comes to sovereign AI it does suggest more duplication you've got countries building out their own architecture infrastructure what do you think that is going to mean for the picks and shovels this year? Right now it's looking very positive I mean across the board if you think about across the entire stack TSMC is a great indication they're the company that are fabricating that are manufacturing all these chips and it's not just sort of NVIDIA systems they're building it's also other components like memory and there's a massive shortage of memory from the likes of SK Hynix, Samsung, Micron in the market right now which is causing an unprecedented hike in prices for these components as well and that all tends to filter through to the rest of the market when it comes to designing of chips, packaging of chips and of course the manufacturing side and potentially even some of the equipment suppliers. There are planned production capacities for memory in particular over the next couple of years of course production capacity expansion usually means an increase of manufacturing and the tools that go into manufacturing so you can think in Europe of course companies like ASML are hoping to be beneficiaries of that as well.

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