Europe doubles down on tech sovereignty as US tariffs fuel domestic investment

European governments and businesses are accelerating domestic technology investments as a strategic response to US tariffs and geopolitical pressures, with tech spending forecast to climb 6.3 percent in 2026 to exceed €1.5 trillion for the first time, according to new research from Forrester.

The tariff-driven shift represents a fundamental change in how Europe approaches its technology infrastructure, moving from dependence on US cloud providers and hardware manufacturers toward domestically controlled systems.

Hardware leads the sovereignty push

Hardware spending is forecast to jump 14.3 percent as organizations scramble to acquire AI-optimized servers and supporting infrastructure. This surge reflects a broader strategy to build critical capabilities within European borders rather than relying on external providers.

Software investments are following closely behind with an 11.2 percent increase, primarily driven by demand for cybersecurity tools and public cloud platforms that can operate under European data sovereignty rules.

The sovereignty imperative

Forrester frames much of this increased spending as a sovereignty play, with money flowing into sovereign cloud platforms, AI-ready infrastructure, and tighter controls over data location and access. The shift represents a strategic pivot from the previous model of renting capabilities from hyperscalers to owning critical infrastructure.

"The numbers show that Europe has stopped waiting for things to calm down," Forrester analysts note. "The money is going in now, sovereignty is back on the agenda, and the thinking seems to be that owning more of the stack is less painful than relying on it later."

Defense and healthcare drive strategic investments

Defense and healthcare sectors sit at the center of Europe's technology sovereignty strategy. Forrester expects UK defense R&D spending to grow by about 9 percent annually from 2026 to 2030, driven by geopolitical tensions and a renewed appetite for advanced equipment.

Healthcare is following a similar trajectory, with NHS technology spending on track to almost double to £10 billion by 2029. The service is leveraging digital systems to address staffing gaps and maintain aging infrastructure.

UK leads in AI deployment

Michael O'Grady, principal forecast analyst at Forrester, says the UK has largely moved past AI experimentation into day-to-day use, especially in financial services. He claims around three-quarters of UK financial firms already have AI running in production.

"The UK is moving swiftly from AI experimentation to performance, particularly in the financial sector," O'Grady said. "Despite external economic pressures and tariff risks, the UK's strategy to increase AI compute capacity and target £22.6 billion in R&D spending by 2030 signals a clear, long-term vision for technological leadership."

The cloud independence movement

The shift away from US cloud providers is gaining momentum across Europe. EU officials are actively promoting open source initiatives to pry the continent off Big Tech dependencies, encouraging firms to adopt EU-native cloud solutions.

This movement extends beyond mere preference - it represents a fundamental restructuring of Europe's technology ecosystem. The strategy involves rebuilding the continent's tech stack from the ground up, with open source software playing a central role in reducing dependencies on American technology giants.

Economic resilience amid trade tensions

While US tariffs are causing problems and Ireland is feeling the impact more than most due to its reliance on US multinationals, Forrester expects the wider EU economy to maintain stability. Real GDP growth in 2026 is forecast to match 2025 levels, supported by strong intra-European trade and increased defense spending.

The resilience is most visible in technology budgets, where strategic investments continue despite economic headwinds. This suggests that European governments and businesses view technology sovereignty as essential infrastructure rather than discretionary spending.

The new European technology landscape

The current wave of investment represents more than just a response to tariffs - it signals a permanent shift in how Europe approaches its technology infrastructure. The continent is building capabilities that were previously outsourced, creating a more self-reliant technology ecosystem.

This transformation extends across multiple layers of the technology stack, from hardware manufacturing to software development to cloud infrastructure. The goal is clear: reduce strategic dependencies while building competitive advantages in emerging technologies like AI and quantum computing.

Long-term implications

The sovereignty-driven investment surge will likely reshape global technology markets over the coming decade. As Europe builds its own capabilities, the balance of power in the technology sector may shift, creating new opportunities for European technology companies while challenging the dominance of US providers.

For businesses operating in Europe, this shift means adapting to new regulatory frameworks, data sovereignty requirements, and technology ecosystems. Companies that can navigate this evolving landscape while maintaining compliance with European standards will be well-positioned for success in the new technology order.

The investment surge also raises questions about the future of transatlantic technology cooperation. While economic ties remain strong, the push for sovereignty suggests that Europe is preparing for a future where it can operate independently of US technology infrastructure if necessary.

As Forrester's analysis makes clear, Europe's response to current challenges is creating lasting changes in how the continent approaches technology. The sovereignty agenda is no longer a theoretical discussion but a practical reality driving billions in investment and reshaping the global technology landscape.