Deutsche Telekom and Nvidia | Munich's billion-dollar bet: Can an AI factory (data center) save Germany's industrial future?

While Europe is falling behind digitally, Telekom and Nvidia are relying on sovereign computing power.

In November 2025, Deutsche Telekom and the American chip manufacturer Nvidia announced an investment decision that goes far beyond a typical infrastructure project. With a volume of around one billion euros, a so-called Industrial AI Cloud is being built in Munich, positioned as Europe's first sovereign AI factory. The announcement was not coincidentally made in Berlin, in the presence of Federal Minister for Digital Affairs Karsten Wildberger and Federal Minister for Research Dorothee Bär, underscoring the political dimension of this initiative. Telekom CEO Tim Höttges formulated a clear message, oscillating between warning and promise: Germany will not survive if it does not adapt to and utilize the new technology.

This rhetoric reveals the urgency with which Germany and Europe must address their technological backwardness. The figures are sobering: only five percent of the world's high-performance AI chips are used in Europe, while the US controls 70 percent and China 20 percent. This asymmetric distribution of computing power is not a mere technical footnote, but rather the yardstick for economic competitiveness in the 21st century. Artificial intelligence is no longer an experimental field, but a fundamental technology that will determine the future viability of entire economies.

The Munich project fits into a larger context characterized by a fundamental realignment of European technology policy. After decades of dependence on American and increasingly Chinese technology platforms, there is a growing realization that digital sovereignty is not an idealistic vision, but an economic necessity. The investment by Deutsche Telekom and Nvidia should therefore be understood less as an isolated effort and more as a building block of a broader strategy operating under the label "Made 4 Germany," which unites over 100 companies.

Technological infrastructure as the foundation of economic power

The technical specifications of the Munich data center illustrate the scale of the project. Located in Tucherpark, near the English Garden, an existing Telekom data center is undergoing a comprehensive renovation and will be equipped with up to 10,000 Nvidia Blackwell GPUs. These latest-generation processors represent the pinnacle of currently available AI hardware and enable a computing power of 0.5 exaflops, equivalent to 500 quadrillion calculations per second. The storage capacity is approximately 20 petabytes, and the entire system will be connected to the internet via four 400-gigabit fiber optic connections.

Particularly noteworthy is the cooling concept, which utilizes the Eisbach stream flowing directly past the site. This solution is not only technically elegant but also ecologically significant, as cooling data centers accounts for a considerable share of their total energy consumption. Data centers in Germany consumed approximately 20 billion kilowatt-hours of electricity in 2024, and this demand will continue to rise due to AI applications. Forecasts predict an increase to between 39 and 88 terawatt-hours by 2045. Energy efficiency is therefore not only a matter of operating costs but also of the social acceptance of such large-scale projects.

The construction time of just six months, which Höttges highlights, is remarkable by international standards, but also reflects the limitations of German infrastructure development. While similar projects in China can be completed within months, major projects in Germany are often delayed for years due to complex permitting processes and environmental regulations. The Munich project benefits from the fact that an existing data center is being converted, which reduces administrative hurdles. Nevertheless, the question remains whether Germany is capable of building the necessary infrastructure at the pace demanded by global competition.

The network of actors and the logic of cooperation

The Industrial AI Cloud is not a bilateral project between Deutsche Telekom and Nvidia, but a complex ecosystem uniting large corporations, medium-sized businesses, and startups. SAP plays a central role, providing the integration layer between hardware infrastructure and application layer with its Business Technology Platform. This platform enables companies to extend their existing SAP systems with AI functionalities without having to fundamentally rebuild their core systems. SAP CEO Christian Klein emphasizes that digital sovereignty is not achieved through isolation, but through combining best-in-class technologies with European data control.

Siemens, one of Europe's largest industrial conglomerates, signals through its participation that the cloud is not only relevant for startups and digital business models, but also for traditional manufacturing companies. Siemens plans to build its own Software-as-a-Service offerings on the infrastructure and points to use cases at Mercedes-Benz and BMW, where complex simulations are conducted with AI-powered digital twins. These references are significant because they demonstrate that the Industrial AI Cloud is not a theoretical platform, but addresses concrete industrial applications.

The involvement of companies like Agile Robots, Wandelbots, Quantum Systems, and PhysicsX represents the new generation of European technology firms operating at the intersection of AI and the physical world. Agile Robots, a Munich-based robotics company, is developing a Robotic Foundation Model that requires large datasets and corresponding computing power. Quantum Systems, a drone manufacturer, uses the platform for development tasks. Perplexity, an AI search engine, is also among the early customers, demonstrating that the infrastructure is attractive for data-intensive consumer applications as well.

This landscape of partnerships reveals a strategic insight: Europe cannot prevail in the AI ​​competition through individual champions, but only through interconnected ecosystems. The Made 4 Germany initiative, which now includes 105 companies, aims to strengthen Germany's position as a business location through coordinated investments of €735 billion by 2028. Microsoft recently joined this initiative, underscoring that American technology companies also have an interest in a strong European digital infrastructure, albeit for different reasons than the European players themselves.

Sovereignty as an economic policy category in the digital age

The concept of digital sovereignty has transformed in recent years from an academic one into a central economic policy imperative. Europe's dependence on American cloud providers is not merely a technical vulnerability, but a structural one. Over 70 percent of the European cloud market is dominated by Amazon Web Services, Microsoft Azure, and Google Cloud. This concentration has far-reaching implications that extend well beyond pricing and service levels.

The US Cloud Act of 2018 allows US authorities to access data held by US companies, regardless of where that data is physically stored. This directly conflicts with the European General Data Protection Regulation (GDPR), which rigorously regulates the protection of personal data and the control of data flows. The 2020 Schrems II ruling by the European Court of Justice invalidated the Privacy Shield framework, thereby exacerbating legal uncertainty surrounding transatlantic data transfers. For European companies relying on non-European cloud services, this poses a significant compliance risk.

The geopolitical tensions between the US and Europe, which manifest themselves differently under various US administrations but never completely disappear, exacerbate the problem. Security policy experts in Germany are increasingly warning that the US could use cloud services as geopolitical leverage. The close ties between American politics and major technology companies, which became particularly evident under the Trump administration, further increase the uncertainty. The theoretical possibility that software updates could be withdrawn or services discontinued may currently seem unlikely, but it cannot be ruled out.

The European response to this challenge is not protectionist isolation, but the creation of alternative infrastructures that operate under European law and are subject to European control. The Munich AI factory is explicitly designed so that all data remains in Germany and is managed exclusively by personnel based in Germany and Europe. This is more than symbolic politics; it addresses the real needs of regulated sectors such as financial services, healthcare, public administration, and the defense industry, which must be particularly sensitive to data localization and access control.

Europe in the global race for AI dominance

The global AI landscape is characterized by a bipolar structure, with the US and China dominating technologically, economically, and strategically. The US boasts leading research institutions, the largest technology companies, and the highest investment volumes. Microsoft alone announced an investment of €3.2 billion in Germany for 2024, Oracle is investing €1.7 billion in the Rhine-Main region, and similar sums are flowing into other European locations. These investments are considerable, but remain modest compared to the hundreds of billions of dollars being invested in the US itself.

China is pursuing a different, but no less effective, strategy. In January 2025, the country unveiled DeepSeek, an AI model developed at significantly lower costs while offering comparable performance to its Western counterparts. China already holds over 70 percent of the world's AI patent applications and is expanding its computing infrastructure at a speed unimaginable in Europe. The Chinese government explicitly views AI as a strategic technology and promotes its development through massive state programs.

Europe finds itself in a difficult position in this situation. The European Commission has mobilized €200 billion through the InvestAI initiative to expand AI infrastructure, including €20 billion for a fund intended to support four to five AI gigafactories. These gigafactories are each to be equipped with at least 100,000 GPUs, which makes the Munich facility with its 10,000 GPUs seem like a preliminary step. The application process for these gigafactories is complex and politically charged. German companies such as Telekom, Ionos, and the Schwarz Group were unable to agree on a joint application, revealing the fragmentation of the German technology sector.

The EU has so far selected 19 smaller AI factories and announced six more in October 2025 in the Czech Republic, Lithuania, Poland, Romania, Spain, and the Netherlands. Germany was awarded the contract for the HammerHai project in Stuttgart, but the large gigafactories have not yet been awarded. Following the call for expressions of interest, which ended in June 2025, 76 submissions were received from 16 EU member states for 60 different locations. This high number demonstrates the interest, but also the fragmentation of European efforts.

A new dimension of digital transformation with 'Managed AI' (Artificial Intelligence) – Platform & B2B Solution | Xpert Consulting - Image: Xpert.Digital

Here you will learn how your company can implement customized AI solutions quickly, securely, and without high entry barriers.

A Managed AI Platform is your all-round, worry-free package for artificial intelligence. Instead of dealing with complex technology, expensive infrastructure, and lengthy development processes, you receive a turnkey solution tailored to your needs from a specialized partner – often within a few days.

The key benefits at a glance:

⚡ Fast implementation: From idea to operational application in days, not months. We deliver practical solutions that create immediate value.

🔒 Maximum data security: Your sensitive data remains with you. We guarantee secure and compliant processing without sharing data with third parties.

💸 No financial risk: You only pay for results. High upfront investments in hardware, software, or personnel are completely eliminated.

🎯 Focus on your core business: Concentrate on what you do best. We handle the entire technical implementation, operation, and maintenance of your AI solution.

📈 Future-proof & Scalable: Your AI grows with you. We ensure ongoing optimization and scalability, and flexibly adapt the models to new requirements.

More about it here:

• The Managed AI Solution - Industrial AI Services: The key to competitiveness in the services, industrial and mechanical engineering sectors

Industrial transformation as an existential challenge

The full significance of the AI ​​factory in Munich only becomes clear when viewed within the context of the structural crisis facing German industry. Germany is one of the world's most productive economies, but this productivity has stagnated for years. From 2020 to 2024, labor productivity increased by an average of just 0.3 percent per year, while annual growth of 1.8 percent would be necessary to maintain the current level of prosperity. This productivity gap is not cyclical, but structural.

German mechanical engineering, long a flagship industry, is in crisis mode. Chinese competitors are aggressively pushing into the market, not only with cheaper individual components but increasingly also with complete systems. The combination of German engineering expertise and intelligent software, which many experts see as the solution, requires precisely the AI ​​skills and computing power that are currently lacking. Around 42 percent of industrial companies are already using AI in production, but 46 percent see a risk that German industry will miss out on the AI ​​revolution.

The automotive industry, another cornerstone of the German economy, is facing a dual transformation: the transition to electromobility and the integration of AI into vehicles and production processes. The Digital Maturity Index shows that the automotive industry has reached a maturity level of 5.4 on a scale of 7 in its AI usage, which is slightly below the industry average. The correlation between digital maturity and economic performance is clear: companies with a higher degree of digitalization achieve significantly higher EBIT growth.

The AI ​​factory in Munich explicitly aims to serve these industrial use cases. The ability to train proprietary AI models with proprietary data is of strategic importance for industrial companies. Public cloud platforms may be sufficient for consumer applications, but companies that want to optimize their production processes or develop new products need specialized infrastructures that meet their specific requirements for data protection, security, and performance.

Location disadvantages and structural obstacles

The euphoria surrounding Munich's AI factory shouldn't obscure the fact that Germany faces significant structural disadvantages in the global competition for digital infrastructure. Energy costs are a key factor. While electricity prices for industry have fallen again after the extreme peaks of 2022, they remain high by international standards. CO2 pricing in the European Emissions Trading System will further increase energy costs in the long term, significantly impacting the operating costs of energy-intensive data centers. Countries like China and the USA benefit from lower energy costs, giving them a structural competitive advantage.

Bureaucracy and lengthy approval processes are cited by companies as the biggest obstacles to productivity. A 400-megawatt Microsoft data center in Wisconsin was delayed for years by environmental regulations, while comparable projects in China can be completed within months. The German government's data center strategy, which promises faster permits, reliable energy supply, and available land, has yet to prove itself in practice.

The shortage of skilled workers presents another fundamental challenge. Germany currently lacks approximately 109,000 IT specialists, and 79 percent of companies expect this shortage to worsen in the future. Demographic trends exacerbate the problem: by 2035, the working-age population will shrink by more than three million people. AI can partially compensate for this skills shortage, but only if the necessary infrastructure is available and employees receive appropriate training. Deutsche Telekom is planning further training programs as part of its Industrial AI Cloud, but whether these will solve the problem remains to be seen.

The regulatory trap: Innovation versus control

The EU AI Act, which entered into force in August 2024, represents Europe's attempt to establish ethical and legal standards for the use of artificial intelligence. The regulation categorizes AI systems according to their risk potential and sets corresponding requirements. Strict documentation and transparency obligations apply to high-risk systems, such as those used in healthcare or critical infrastructure. This approach aligns with European values ​​and the precautionary principle, but carries the risk of stifling innovation.

Critics argue that the AI ​​Act could further disadvantage Europe in global competition. While the US and China are experimenting and scaling with significantly fewer regulatory hurdles, European companies must meet complex compliance requirements. A group of 46 European CEOs called for a two-year postponement of the AI ​​Act in an open letter, arguing that its implementation jeopardizes competitiveness. The European Commission rejected this request but signaled its willingness to make pragmatic adjustments.

The Munich-based AI factory must operate within this regulatory environment and could, paradoxically, benefit from the stringent rules. Companies that need to comply with the AI ​​Act require infrastructures that consider these requirements from the outset. The combination of European data localization, transparent governance, and integration with established enterprise systems like SAP could represent a competitive advantage over generic cloud offerings. Whether this advantage outweighs the disadvantages will only become clear in the coming years.

The balance between regulation and innovation is one of the central questions of European technology policy. The AI ​​Act can serve as a model for responsible AI development worldwide and give European companies a reputational advantage. However, it could also lead to the best talent and the most innovative companies leaving Europe because they can work faster and with less bureaucracy elsewhere. The truth probably lies somewhere between these extremes, but the direction is not yet clear.

Too little, too late, too fragmented?

The one billion euro investment in Munich's AI factory is considerable, but manageable in a global context. The American Stargate project, announced in January 2025, encompasses 500 billion dollars over several years. Microsoft alone is investing 3.2 billion euros in Germany, and Oracle is providing 1.7 billion euros for the Rhine-Main region. The European initiatives, however significant they may be individually, fall short of the scale required to close the gap.

The fragmentation of German and European efforts is problematic. The fact that major German companies could not agree on a joint bid for an EU Gigafactory illustrates the difficulties of coordination. Telekom, Ionos, the Schwarz Group, and others are each pursuing their own strategies, leading to duplicate structures and inefficient resource allocation. Europe as a whole has submitted 76 expressions of interest for AI Gigafactories, which, while signaling dynamism, also carries the risk of fragmentation. A coherent European strategy that pools resources and sets priorities is not yet apparent.

The timeframe is also critical. The Munich facility is scheduled to go into operation at the beginning of 2026 and will then increase AI computing power in Germany by 50 percent. That sounds impressive, but the starting point is so low that even a doubling or tripling of capacity wouldn't put Germany at the global forefront. Nvidia CEO Jensen Huang emphasized at the project's launch that Germany now has no more excuses for not adopting AI. This phrasing reveals the underlying perspective: Europe is seen as a laggard that needs to catch up, not as an innovator setting standards.

The Munich project also retains its dependence on American technology. The 10,000 Blackwell GPUs come from Nvidia, and there is no European alternative. Initiatives to build domestic chip production, such as those under the European Chips Act, are long-term projects and will not deliver substantial capacity for at least another decade. The Munich AI factory is therefore a compromise: it uses American hardware but operates under European law and control. Whether this is sufficient to guarantee true sovereignty is a matter of debate.

What's at stake

The Munich AI factory is more than just a data center. It symbolizes Europe's ability to respond to the fundamental shifts in the global economic order. The coming years will show whether Europe can play an independent role in the digital age or whether it will have to retreat to the position of a regulated market for American and Chinese technologies.

The project's success depends on several factors. First, the infrastructure must actually go online as planned and deliver the promised performance. Second, enough companies must use the platform to make it economically viable. The first customers have been identified, but whether this will lead to a sustainable ecosystem remains to be seen. Third, political and financial support must continue beyond the announcement phase. Experience with previous initiatives like Gaia-X, which were launched with great effort but ultimately disappointed, serves as a cautionary tale.

In the long term, Europe must find answers to fundamental questions. How can dependence on non-European hardware be reduced? How can the best talent be retained and attracted to Europe? How can the balance between regulation and innovation be struck to ensure security without sacrificing competitiveness? How can national egoism be overcome and genuine European cooperation be created?

The Munich AI factory won't answer these questions alone, but it can be one building block of the answer. It shows that private sector initiative is possible and that German companies are prepared to invest significant sums in digital infrastructure. It demonstrates that technological sovereignty doesn't have to be at odds with international cooperation. And it creates a concrete platform on which European companies can develop AI expertise without subjecting their data to foreign control.

Whether this multi-billion-euro gamble pays off will not depend on technical specifications or investment volumes, but on the ability to overcome the structural weaknesses of the European economic model. Germany and Europe are facing a historic turning point. The decision is being made now, and its effects will be felt for decades to come. The AI ​​factory in Munich is a start, but it is only a start. What must follow is a comprehensive economic and political transformation process that extends far beyond the topic of AI. The question is no longer whether Germany needs to adapt, but whether it is still capable of doing so. The answer will determine the coming years.

Our EU and Germany expertise in business development, sales and marketing - Image: Xpert.Digital

Industry focus: B2B, digitalization (from AI to XR), mechanical engineering, logistics, renewable energies and industry

More about it here:

• Xpert Business Hub

A topic hub with insights and expertise:

• Knowledge platform on the global and regional economy, innovation and industry-specific trends
• Collection of analyses, impulses and background information from our focus areas
• A place for expertise and information on current developments in business and technology
• Topic hub for companies that want to learn about markets, digitalization and industry innovations

☑️ Our business language is English or German

☑️ NEW: Correspondence in your national language!

Konrad Wolfenstein

I would be happy to serve you and my team as a personal advisor.

You can contact me by filling out the contact form or simply call me on +49 89 89 674 804 (Munich) . My email address is: wolfenstein ∂ xpert.digital

I'm looking forward to our joint project.

☑️ SME support in strategy, consulting, planning and implementation

☑️ Creation or realignment of the digital strategy and digitalization

☑️ Expansion and optimization of international sales processes

☑️ Global & Digital B2B trading platforms

☑️ Pioneer Business Development / Marketing / PR / Trade Fairs

Benefit from Xpert.Digital's extensive, fivefold expertise in a comprehensive service package | R&D, XR, PR & Digital Visibility Optimization - Image: Xpert.Digital

Xpert.Digital has in-depth knowledge of various industries. This allows us to develop tailor-made strategies that are tailored precisely to the requirements and challenges of your specific market segment. By continually analyzing market trends and following industry developments, we can act with foresight and offer innovative solutions. Through the combination of experience and knowledge, we generate added value and give our customers a decisive competitive advantage.

More about it here:

• Use the 5x expertise of Xpert.Digital in one package - starting at just €500/month