AI Sovereignty: Why German Companies Shouldn't Send Their Data to US AI Services
In July 2025, something happened that drew unusual attention across the tech industry: a Microsoft executive publicly admitted that the company cannot guarantee data sovereignty for European customers if the US government demands access under the CLOUD Act.
No promise, no workaround, no exception. Simply: We cannot guarantee it.
For companies that process their most sensitive data – customer records, contracts, patents, internal communications – through AI systems from Microsoft, OpenAI, or Google, this is a wake-up call. Because the CLOUD Act is not a theoretical risk. It is active law.
This article analyzes why AI sovereignty is no longer a niche concern in 2026, what the regulatory developments mean for enterprises – and what concrete alternatives exist.
Table of Contents
The Facts: What Happened in 2025
The past year produced a series of events that catapulted data sovereignty and AI from theory into practice.
Microsoft: "We Cannot Guarantee It"
In July 2025, a Microsoft executive admitted that the company cannot guarantee data sovereignty for European customers when US authorities demand data access under the CLOUD Act. Microsoft had previously announced the completion of its "EU Data Boundary" in February 2025 – a system designed to store European customer data within the EU/EFTA.
The problem: Data residency is not data sovereignty. The data may physically reside in Europe, but it remains subject to US legal jurisdiction. The CLOUD Act gives US authorities the power to access data from US companies – regardless of the physical storage location, and without judicial review by an EU court.
Italy: €15 Million GDPR Fine for OpenAI
In December 2024, Italy's data protection authority Garante imposed the first GDPR fine on a generative AI provider: €15 million against OpenAI. The charges: no legal basis for processing training data, lack of transparency, no age verification for minors, and failure to report a data breach in March 2023.
Italy had already been the first country to temporarily block ChatGPT in March 2023. The fine shows that European authorities are ready to act.
DeepSeek: Effectively Banned in Germany
In January 2025, Italy became the first EU country to ban the DeepSeek app. Shortly after, France, the Netherlands, Belgium, Luxembourg, Ireland, and Portugal launched investigations.
In June 2025, Berlin's data protection commissioner Meike Kamp demanded DeepSeek remove its app from German app stores. When the company didn't respond, she reported the case under Article 16 of the Digital Services Act to Apple and Google – demanding the app be blocked. Her verdict: the data transfer to China was unlawful, as Chinese authorities have "far-reaching access rights to personal data within the sphere of influence of Chinese companies."
The EU AI Act: Things Get Serious in August 2026
On August 2, 2026, the majority of rules in the EU AI Act take effect – the world's first AI regulation. This includes:
- High-risk AI systems (Annex III): strict obligations for documentation, risk assessment, and human oversight
- Transparency obligations (Article 50): users must be informed when they interact with AI
- General-Purpose AI Models: providers like OpenAI, Anthropic, or Mistral must disclose technical documentation and copyright information
The penalties are substantial: up to €35 million or 7% of global annual revenue – whichever is higher.
For companies using US-based AI APIs, this creates a double risk: they must comply with the EU AI Act while simultaneously depending on a provider subject to the CLOUD Act whose compliance promises – as Microsoft's admission shows – are limited.
Why "Servers in Frankfurt" Is Not Enough
A common argument goes: "Our data is in AWS Region eu-central-1 in Frankfurt. That's secure."
No.
CLOUD Act vs. GDPR: The Fundamental Conflict
| Aspect | CLOUD Act (US) | GDPR (EU) |
|---|---|---|
| Scope | All US companies, worldwide | All companies processing EU data |
| Access authority | US authorities, without EU court order | Only with legal basis under EU law |
| Server location relevant? | No | Yes, but not the sole factor |
| Right to object | Theoretically yes, rarely in practice | Clear data subject rights |
The European Data Protection Board (EDPB) has stated that service providers subject to EU law cannot base data transfers to the US solely on CLOUD Act requests. The CLOUD Act bypasses Mutual Legal Assistance Treaties (MLATs) and gives US authorities unilateral access without European judicial review.
What This Means for AI Inference
When a German company sends contracts, customer data, or internal documents through an API to GPT-4, Copilot, or Claude, that data leaves the company's sphere of control. Even if the API endpoint is in Europe, the provider – a US company – has technical access to the data.
This is not a theoretical risk. It is the legal reality.
What's Moving: The European Response
In parallel with regulatory tightening, Europe is investing massively in its own AI infrastructure.
Deutsche Telekom: €1 Billion AI Factory
In February 2026, Deutsche Telekom launched the "Industrial AI Cloud" together with NVIDIA – over 1,000 NVIDIA DGX B200 systems with up to 10,000 Blackwell GPUs in a Munich data center. First customers: Mercedes-Benz, BMW Group, and Siemens. The data stays in Germany.
Schwarz Digits: From Supermarket to Hyperscaler
The IT subsidiary of the Schwarz Group (Lidl, Kaufland) is expanding STACKIT into a German hyperscaler – with an €11 billion investment in a new data center in Lübbenau. Germany's BSI has been cooperating with Schwarz Digits since March 2025 for sovereign cloud solutions in public administration.
Mistral AI: Europe's AI Infrastructure
French AI company Mistral AI – valued at €11.7 billion after a Series C – is planning the "Mistral Compute" platform for 2026: 18,000 NVIDIA Grace Blackwell chips powered by European energy.
The Numbers Speak for Themselves
| Metric | Value |
|---|---|
| US cloud market share in Europe | 70% |
| European cloud providers market share | 15% |
| European Sovereign Cloud market (2025) | $56.27 billion |
| Projected growth (CAGR to 2033) | 24.7% |
| Companies with sovereign cloud plans | 84% |
| Gaia-X implementation projects | 150+ |
The Alternative: AI Inference on Your Own Infrastructure
For companies that don't want to wait for billion-dollar investments, there's a practical alternative: Self-Hosted AI Inference.
What's Possible Today
Current open-source models achieve quality comparable to proprietary APIs for many enterprise tasks:
| Model | Parameters | VRAM Required | Strength |
|---|---|---|---|
| Llama 3.3 70B | 70B | ~42 GB | Allround, Code, Reasoning |
| Mistral Large 123B | 123B | ~75 GB | Multilingual, Enterprise |
| Qwen 2.5 72B | 72B | ~45 GB | Coding, Mathematics |
| DeepSeek-R1 (distilled) | 70B | ~42 GB | Reasoning, Analysis |
| Phi-4 14B | 14B | ~10 GB | Compact, Efficient |
All these models run on a single server with an NVIDIA RTX 6000 Blackwell (96 GB VRAM) – no offloading, no cloud, no data leakage.
The Stack: Four Components, Full Control
A production-ready self-hosted AI stack consists of:
- Hardware: Dedicated GPU server with NVIDIA RTX 6000 (96 GB VRAM), in a German data center
- Inference Engine: Ollama for simple deployments or vLLM for high-throughput scenarios
- Frontend: Open WebUI as a ChatGPT-like interface with user management, RAG, and document analysis
- Network: VPN tunnel (e.g., NetBird) for secure access – no public endpoints
Cost Comparison: Self-Hosted vs. Cloud API
| Cost Factor | Cloud API (GPT-4) | Self-Hosted (Managed GPU) |
|---|---|---|
| Monthly cost (20 users) | €5,000 – 20,000 | €1,549.90 |
| Data processing | US servers (CLOUD Act) | German data center |
| GDPR compliance | Limited | Full |
| Vendor lock-in | High (API dependency) | None (Open Source) |
| Model switching | Provider switch required | Swap model via CLI |
| Scaling | Linear with token usage | Flat rate |
What Companies Should Do Now
The regulatory trajectory is clear: the EU AI Act tightens requirements from August 2026, the CLOUD Act remains in force, and European authorities are increasingly willing to enforce. Those who act now have an advantage.
Five Concrete Steps
-
Create an AI inventory: Which AI tools are being used in the company? Where does data flow? Many companies have no overview of their employees' actual AI usage.
-
Conduct a risk assessment: For each AI tool, check: Who is the provider? Which law applies? Where is data processed? Is there a data processing agreement (DPA)?
-
Start a pilot project: Set up a self-hosted AI server for a specific use case – e.g., internal document analysis, code assistance, or customer service drafts.
-
Prepare for EU AI Act compliance: Especially for high-risk applications, review documentation and transparency obligations. The August 2, 2026 deadline approaches faster than expected.
-
Rethink vendor strategy: Review long-term contracts with US cloud AI providers for CLOUD Act clauses. Are there exit strategies? Is data exportable?
Conclusion: Control Is Not a Luxury
AI sovereignty is not a buzzword and not a marketing term. It is the consistent application of a principle that has held true in IT security for decades: Whoever controls the infrastructure controls the data.
The facts of 2025 showed this unmistakably:
- Microsoft cannot guarantee data sovereignty
- OpenAI was fined €15 million
- DeepSeek is effectively banned in Germany
- The EU AI Act will be enforced from August 2026
Companies that invest in self-hosted AI infrastructure today have no disadvantage in model quality – but a decisive advantage in compliance, cost, and control.
Further Reading
- GDPR-Compliant AI Inference with Our GPU Servers
- Ollama vs. vLLM: Comparison for Self-Hosted LLMs
- Open WebUI vs. AnythingLLM: The Comparison
- Local AI Inference with Our AI Cube
- GPU Server Upgrade: NVIDIA RTX 6000 Blackwell
Sources
- The Register: Microsoft Exec Admits Cannot Guarantee Sovereignty
- Euronews: Italy Fines OpenAI €15 Million
- CNBC: Germany Tells Apple, Google to Block DeepSeek
- EU AI Act Implementation Timeline
- Euronews: Germany Unveils First AI Factory
- Schwarz Digits: STACKIT Hyperscaler Expansion
- Wire: CLOUD Act vs. EU Data Sovereignty
- Fortune Business Insights: Sovereign Cloud Market
Frequently Asked Questions
Answers to important questions about this topic
AI sovereignty means a company retains full control over its AI models, training data, and inference infrastructure – without dependence on US cloud providers or Chinese platforms subject to foreign law.
The US CLOUD Act allows US authorities to access data from US companies – regardless of where the data is physically stored. This affects all AWS, Azure, and Google Cloud customers, even if the servers are located in Frankfurt.
A dedicated GPU server with 96 GB VRAM for local LLM inference costs approximately €1,500/month as a managed service. With cloud APIs like GPT-4, companies often pay €5,000-20,000/month in token costs alone – without control over their data.
With 96 GB VRAM, models like Llama 3.3 70B, Mistral Large 123B, DeepSeek-R1 (distilled), or Qwen 2.5 72B run comfortably on a single GPU. For smaller models like Phi-4 or Gemma 2, 20 GB VRAM is sufficient.
Yes – if the infrastructure is located in a German data center and no data is transmitted to third parties. Since no personal data leaves the system during local inference, most GDPR transfer issues are eliminated.
The EU AI Act is the world's first AI regulation. The main rules – including obligations for high-risk AI systems and transparency requirements – apply from August 2, 2026. Violations can be penalized with fines of up to €35 million or 7% of global annual revenue.
Written by
Timo Wevelsiep
Co-Founder & CEO
Co-Founder of WZ-IT. Specialized in cloud infrastructure, open-source platforms and managed services for SMEs and enterprise clients worldwide.
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