The Industrial AI Wars: Germany's New Industrial AI Cloud "Sovereign-By-Origin" Battle Line

Originally Published November 2025, on ARCweb.com by Colin Masson, Director of Research for Industrial AI, at ARC Advisory Group Inc.

For the past 24 months, my "voyage of discovery" into the “Industrial AI Wars” and "Physical Intelligence" has been focused on a central theme: cutting through the hype to find the foundational capabilities needed to make AI scalable and real. I’ve written extensively about the partnerships and ecosystems that have arisen as a result of AI, including the critical and much-analyzed NVIDIA–Siemens partnership in forging the Industrial Metaverse and SAP ’s strategy to bridge the IT/OT divide—which has evolved to the IT/OT/ET divide.

This abstract, digital conflict has just found its physical embodiment.

On November 5, 2025, a new alliance was unveiled at a press conference in Berlin to announce a new commercial venture, the "Industrial AI Cloud." This is not just another product partnership but a strategic maneuver to help build a fortress. Our assertion that "AI now has a body" has been matched by a strategic move to help build a sovereign home.

This is not just a skirmish; it is a major escalation. We must give credit where it is due: Siemens and SAP are making big, bold moves. But as analysts at ARC Advisory Group, it is our job to look at this from a balanced perspective.

This alliance creates as many questions as it answers—not just for the partners but for the entire industrial ecosystem, including major players such as Rockwell Automation , AVEVA , Schneider Electric , and ABB .

Before we deconstruct motivations, here are the core facts from the announcement:

• The "What": The new "Industrial AI Cloud," a €1 billion partnership between Deutsche Telekom and NVIDIA.
• The "Where": The platform will be hosted in a data center in Munich and is slated to go live in the first quarter of 2026.
• The "Arsenal": This "AI factory" will be powered by 10,000 of NVIDIA’s latest Blackwell GPUs.
• The "Why": The stated goal is "digital sovereignty"—a strategy explicitly defined as "sovereignty, not isolation."
• The "Banner": This is a flagship project of the "Made 4 Germany" initiative, backed by the German government and including over 100 German companies.
• The "Core Alliance": The press conference featured the CEOs of the four founding partners: Deutsche Telekom (providing the sovereign infrastructure), NVIDIA (the core compute engine), SAP (the IT/business platform via BTP), and Siemens (the OT/ET layer and key anchor customer).
• The "Ecosystem Team": A hand-picked roster of initial partners was also announced, including Agile Robots, PhysicsX, Perplexity, and Deutsche Bank.

With the facts on the table, the real analysis begins. This alliance is a "Declaration of Interdependence" that raises more strategic questions than it answers. Let us hypothesize what is really happening.

Hypothesis 1: "Sovereign-by-Origin" vs. "Sovereign-by-Contract"

The central theme is "digital sovereignty." For years, Germany’s industrial giants—particularly in automotive, defense, and critical infrastructure—have been unable to fully embrace the cloud for their most sensitive "crown jewel" data (such as ET simulation files) for fear of U.S. hyperscaler data access.

This brings us to the central paradox of the announcement: how can this be a European sovereign project when its core "arsenal"—the 10,000 GPUs—is supplied by NVIDIA, a US company?

The answer is pragmatism, and what I call a "sovereignty-by-containment" strategy.

This alliance is a pragmatic solution. But to be perfectly clear, this is not a white-labeled version of Azure or AWS. The announcements explicitly describe a platform built on Deutsche Telekom's own "T-Cloud" and physical data center infrastructure.

This is a "Sovereign Deutschland-Stack."

The strategy is not to build a European GPU; it's to contain the world's best GPU within a European fortress. Deutsche Telekom is providing the "walls" (the EU-owned, EU-operated data center), and NVIDIA is stocking the "arsenal" inside those walls. This gives German industry the political and legal "permission" to finally merge their IT, OT, and ET data on a world-class platform, all while ensuring it remains subject to German and EU data laws.

This launch is timed to compete directly with the hyperscalers' own sovereign offerings. Amazon Web Services (AWS) is launching its "AWS European Sovereign Cloud" by the end of 2025, with its first region in Brandenburg, Germany. Microsoft offers the "Microsoft Cloud for Sovereignty," which uses "Sovereign Landing Zones" and an "EU Data Boundary."

The "Industrial AI Cloud" is a strategic bet that these hyperscaler solutions are insufficient. The key differentiator is the type of sovereignty offered. The U.S. firms provide "sovereign-by-contract"—a model where a US-owned parent company contractually promises that its EU-based infrastructure and staff will protect data.

The "Industrial AI Cloud" offers "sovereign-by-origin"—a platform that is EU-owned, EU-operated, and EU-based, with no exposure to non-EU parent companies or jurisdictions. For Germany's most sensitive industrial IP, this "by-origin" model is being positioned as the only truly secure option.

Hypothesis 2: The Siemens Question and the "Multi-Cloud Paradox"

This brings us to the most complex player: Siemens. We must credit it for making big moves. But this announcement creates a massive strategic question, highlighting the "frenemy"-filled world of industrial partnerships.

Siemens’s cloud strategy is now, very publicly, multi-pronged:

1. The Microsoft Azure Play: Siemens is deeply engaged with Microsoft, jointly building the "Siemens Industrial Copilot" and developing its "first industrial foundation model (IFM)" on the Azure platform.
2. The Amazon Web Services (AWS) Play: Siemens also maintains a "powerful partner ecosystem" that includes AWS, with for smart infrastructure and running cloud applications.
3. The New Sovereign Stack Play: Now, Siemens is also a founding partner and anchor customer of this new "Industrial AI Cloud," which is explicitly built with SAP on Deutsche Telekom's non-hyperscaler platform.

This could be a masterstroke of "co-opetition," allowing Siemens to decouple its Xcelerator open digital business platform—which accelerates digital transformation across industries by connecting hardware, software, and services—from the underlying infrastructure. This strategy would position it as the indispensable OT/ET layer, able to deploy on any cloud a customer chooses.

However, this inclusion is not absolute, which brings us to the "Multi-Cloud Paradox." Deutsche Telekom's T-Systems division is, in fact, a major "multi-cloud provider" with partners such as Google, AWS, Microsoft, and SAP. T-Systems already offers "sovereign" solutions on top of U.S. hyperscalers, such as "Data Protection in the AWS Cloud," where T-Systems operates the key management infrastructure from EU data centers.

This makes Siemens’s move even more complex. It introduces significant fragmentation for customers. Will the Industrial Copilot built with Microsoft run on this new stack? How will Siemens reconcile multiple, competing IFM strategies? This ambiguity creates a clear opening for competitors such as Rockwell Automation, Schneider Electric, and ABB, who can now question the coherence of Siemens’s vision and offer a simpler, more unified message.

Hypothesis 3: The "Conspicuous Absences" and the Real AI Wars

This announcement is just as notable for who was not on stage. This, to me, signals the real battlefronts opening up.

The Cloud Question: Where are AWS and Microsoft?

The most glaring absence, given Hypothesis 2, is both of Siemens’s major hyperscaler partners. Their exclusion from this "sovereign" project is a deliberate statement, reinforcing that this "fortress" is intended as a direct competitor to their Sovereign Clouds for Germany's most sensitive workloads.

The Data Fabric Question: Where is Databricks?

SAP’s entire "Business Data Cloud" strategy, which I've covered extensively, leans heavily on a deep, native partnership with Databricks, a unified, open analytics platform for big data processing, data science, and machine learning.

Their absence from this "Deutschland-Stack" is deafening.

• Question: Is this a "Phase 1" announcement, with a Databricks integration to follow? Or was this a deliberate choice to prioritize SAP's native data fabric (Datasphere) for this "pure" sovereign stack, sidelining a key partner to maintain absolute control? We are awaiting the follow-up.

The "Made 4 Germany" vs. "Manufacturing-X" Question: Where is Bosch?

The other great German industrial champion was nowhere to be seen. This is not an oversight; it is a declaration of a different strategy. We are now watching two competing philosophies for Europe's industrial future:

• Camp 1: The "Made 4 Germany" / "Sovereign Stack." This is the Siemens/SAP approach: a pragmatic, centralized, top-down, integrated stack.
• Camp 2: The "Manufacturing-X" / "Catena-X" model. This is where Bosch is a key leader. It represents a principled, decentralized, open-standards approach. Bosch is investing billions separately in its own AI platforms and clearly betting on a different, federated path.

The Final Questions: The "Physical Intelligence" Team

Finally, let us look at the "dream team" of ecosystem partners. This roster looks hand-picked to build the complete "Physical Intelligence" stack we’ve been writing about:

• The Brain (Cloud): The Deutsche Telekom/NVIDIA AI Factory.
• The Brain (Edge): Siemens’s Industrial Edge PCs.
• The Memory (Data Fabric): The unified IT/OT/ET data from SAP and Siemens.
• The Body (Physical Action): This is Agile Robots . A leader in AI-driven robotics based in Munich , this partner provides the "hands" to execute the digital plan in the real world .

But perhaps the most interesting inclusions are PhysicsX and Perplexity .

• Question: Is PhysicsX the real key to Siemens's IFM? Siemens is already collaborating with it to build "Large Physics Models" (LPMs) using its own Simcenter software portfolio data . Is this 10,000-GPU cluster the supercomputer needed to build a true, physics-aware IFM (using Physics Informed Neural Nets, etc.), which is separate from the Copilot work with Microsoft?
• Question: Why Perplexity, when SAP has Joule? Hypothesis: Sovereignty. Perplexity's CEO explicitly stated the goal is ensuring its "inference layer... can be sovereign within Germany." This suggests Perplexity provides a specialized, verifiable "answer engine" for the "fortress," built on a promise to never train on enterprise data —a critical component for the regulated industries this alliance targets.

This new alliance has not ended the "Industrial AI Wars"; it has simply, and dramatically, escalated them. It draws new battle lines, and the "digital divide" is no longer just about leaders and laggards; it's now an alliance divide.

The question for every other industrial player is no longer whether they will join a sovereign AI alliance, but which one.

Engage with ARC Advisory Group

For ARC Advisory Group recommendations for Navigating the AI Wars, Closing the Digital Divide by Embracing Industrial AI, assembling your Industrial-Grade Data Fabric, and governing and guiding major decisions about enterprise, cloud, industrial edge, and AI software, please contact Colin Masson at cmasson@arcweb.com or set up a meeting with me, or my fellow Analysts at ARC Advisory Group to find out more about our Executive Insights Service for Industrial organizations, and Industrial AI Insights Service for Vendors.