Southern Europe’s bubbling tech transformation

MALAGA, Spain – Perched on the edge of Europe, the Iberian Peninsula looks out from the old world towards the new. This strategic position is one of its biggest assets in the bubbling tech transformation taking place in Spain and Portugal.

The burgeoning growth, specifically in data centres and start-up hubs, takes place amid the strong economic performance of southern Europe, which largely outpaced the north in 2023 and 2024. Spain was ranked as the best economy of 2024 by The Economist, while Portugal also performed above the European average.

Spain has the third-highest number of start-up hubs in Europe (15), after Britain (24) and Germany (16), according to a March report from the Financial Times (FT). Together, Spain and Portugal have 24 hubs, with two of those incubators ranked in the top 20 of Europe’s start-up hubs.

Across the peninsula, cheap sustainable energy, rapidly expanding digital infrastructure and the ability to attract tech talent have underpinned the strong growth in data centres and tech hubs.

But as this tech transformation gains momentum, can the bureaucracy-burdened governments of the south keep up?

“Spain’s most significant advantage is its unique combination of renewable energy leadership, strategic geographical position and great concentration of talent,” Mr David Blazquez, head of public policy infrastructure, energy and sustainability in Spain and Portugal at Amazon Web Services (AWS), told The Straits Times.

Renewables now account for 66 per cent of Spain’s installed power capacity, with solar and wind power contributing almost 27 per cent and 25 per cent respectively.

In the last decade, Spain’s tech workforce grew twelvefold to 175,000, alongside an eightfold increase in funding growth of US$14.1 billion (S$18.3 billion).

Its number of billion-dollar companies jumped from just three in 2015 to 14 in 2024, according to Ms Sarah Guemouri, a principal at European Venture Capital firm Atomico and co-author of the State Of European Tech report.

Availability of seawater, renewable energy a draw for data centres

Data centres, which are the building blocks of serious cloud power and are crucial infrastructure for artificial intelligence (AI), require heavy-duty investment, plenty of physical space and cheap, ideally clean energy.

The port of Sines on Portugal’s Atlantic coast is now home to the largest data centre in Europe and one of the 10 biggest in the world.

Bankrolled by New York-based hedge fund Davidson Kempner, the Start Campus is expected to cost about US$10 billion and will have an impressive 1.2GW of compute power secured. Such a hyperscale facility is currently quite rare and can support large-scale operations and high-demand applications like AI and cloud computing.

Singapore, a regional data centre hub,

has 1.4GW of capacity

and over 70 data centres.

Portugal’s supply of renewable energy and the site’s extensive seawater infrastructure mean that cooling will be cheap and green, said Mr Omer Wilson, chief marketing officer at Start Campus.

“The water-cooling element is getting big tech companies very excited,” he said.

Once fully live, the system will cycle circa 1,000 cubic metres of seawater per minute (1.4 million cubic metres of water per day) for cooling the entire Sines 1.2GW Campus.

The site is designed to be 100 per cent renewable.

It also benefits from Portugal’s extensive underwater cable connections – it is the only country in the world with moored direct sub-sea cables to all continents except Antarctica.

When completed, the Start Campus will have six buildings, each generating between 180MW and 220MW of compute power.

Data centres have exploded in size in terms of power consumption, according to McKinsey & Company. A 200MW facility is considered normal today. 

The first building at the Start Campus became operational towards the end of 2024, and the next will open in the summer.

Mr Wilson told ST that American tech companies make up the majority of its customers.

But it is getting interest from Europe too – specifically France, Britain and Germany – and is “very open” to customers from Asia.

While he acknowledged that it foresees “challenges around regulation”, he said it is optimistic about data centre growth in southern Europe, which could become another hub in addition to Scandinavia.

“We are already looking for something else in Portugal,” he said, disclosing plans to lease their dark fibre routes –unused fibre optic cables that are available for lease – from Sines overland to Madrid, Barcelona and up into France.

“This is becoming an Iberian value proposition,” Mr Wilson said.

Arrival of Amazon Web Services, Microsoft

Ms Begona Villacis, executive director of the Association of Data Centres in Spain, described Spanish data centres as “sustainably native”, operating primarily with solar and wind power.

She sees Spain’s relatively late arrival to the data centre party as an advantage in this regard, and points to the sector’s “exponential growth” in the last five years.

According to the association’s most recent January report, Spain has currently reached 355MW of installed capacity and expects it to increase sixfold over the next five years, potentially exceeding 2.1GW.

Growth has been driven by the arrival of hyperscalers, including Amazon and Microsoft, in the regions of Madrid, Catalonia and more recently Aragon farther north.

AWS’ Mr Blazquez said: “Our investment in the AWS Europe (Spain) Region, which was reinforced with the recent announcement of a new €15.7 billion (S$22.9 billion) investment for the next 10 years, reflects our confidence in Spain’s digital future.”

Microsoft has also announced it would quadruple its investments in AI and cloud infrastructure in Spain between 2024 and 2025, reaching US$2.1 billion.

Mr Enrique Ruiz, data centres lead at Microsoft in Spain, confirmed that Microsoft is expanding its cloud infrastructure to support growing demand from AI. “This includes additional infrastructure at new and existing data centres,” he said.

Describing the data centre sector’s potential as “enormous”, the Association of Data Centres’ Ms Villacis acknowledged that the main challenge is access to the considerable amounts of energy required and “the highly complex administrative procedures, creating a bottleneck” that could slow the sector’s growth and cause Spain to lose its competitive advantage.

Training and attracting enough specialised talent are also fundamental challenges, she added.

AI’s impact on start-up scene

Lanzadera, a Spanish start-up accelerator in Valencia, is the brainchild of Spanish supermarket king Juan Roig, who built the nation’s largest supermarket chain, Mercadona.

Spain’s wealthiest man, Mr Roig took the business management model he used to grow his own brand and applied it to the tech start-up sector. Founded in 2013, Lanzadera has seen more than 1,600 start-ups participate in its training programme.

It was recently ranked the No. 1 tech start-up hub in southern Europe and No. 7 in Europe overall, according to FT.

Lanzadera director-general Marta Nogueras told ST that Lanzadera boasts an 80 per cent start-up survival rate, and that work is already under way to expand the current facilities in excess of its current size of 27,000 sq m.

Ms Nogueras is excited about the impact of AI on the tech start-up scene.

In particular, she mentioned the potential of AI-based innovation in Spain’s well-established sectors like healthcare and education. “Innovation in these sectors is key as a driver of change and in increasing our country’s competitiveness.”

Lisbon’s shiny new Unicorn Factory

In Lisbon, capital of Portugal, Unicorn Factory Lisboa was ranked 17th in Europe in FT’s March report.

Set up in 2022, it is the flagship project of the mayor of Lisbon, previously European Commissioner for innovation and science, Mr Carlos Moedas.

Beginning with just 15 start-ups in its first year, it supported 250 in 2024.

“We have an ambitious plan of growth,” said Mr Gil Azevedo, executive director of Unicorn Factory Lisboa.

Noting that the largest investment funds are still in the US, he said: “Here in Europe, we have a different risk-taking appetite compared with the US.”

“This is not something we can change in the short term. But what we can do is help start-ups raise funds, wherever those funds are,” he added.

With this in mind, Unicorn Factory Lisboa is importing mentors from Silicon Valley, like Mr Steve Cadigan, who led LinkedIn’s first hyper-growth phase as the company’s first chief HR officer.

It is also building a European-wide support network of incubators to circumvent Europe’s fragmented market structure, and is currently in talks with start-up hubs in Valencia and Barcelona.

Mr Cadigan, however, also admitted concerns about the slowness of regulators and bureaucracy, saying: “The biggest risk I see is how to keep the same pace as the tech world.”

Malaga preferred by Google

Malaga, the capital of sun and sangria in southern Spain, is meanwhile undergoing a tech transformation of its own. 

Chosen by Google as the site of its leading cyber-security centre in Europe, GSEC Malaga was established in November 2023 and is led by one of the city’s native sons, Mr Bernardo Quintero. Founder of cyber-security firm VirusTotal, which was acquired by Google in 2012, Mr Quintero is now the tech giant’s security engineering director. 

Malaga is also home to one of Europe’s most established start-up hubs, BIC Euronova. With almost 30 years of experience, it ranks No. 22 overall in Europe for tech start-ups, according to FT, and No. 4 for mentoring.

BIC Euronova’s director-general Simon De Blas told ST that Malaga tech’s next big bet is microelectronics. Specifically, Imec, a world leader in semiconductor research, has established a presence at the tech hub.

While he is positive about Spain’s tech future, he noted that “Spain has to modernise its transport and energy networks” if it is to take full advantage of its potential.

Both the Spanish and Portuguese governments have demonstrated significant commitment to their digital transformation in the last decade or more.

Spain’s Start Up Act (2022) significantly reformed the immigration process for entrepreneurs and investors.

In Portugal, back-to-back digital action plans, starting in 2000 and most recently the Portugal Digital launched in March 2020, have transformed the design and operation of the country’s public services and administration.

Add to that the growth of high-speed rail networks across the Iberian Peninsula and the EU’s wide-ranging strategy to boost AI development and adoption across the continent, and the outlook for the future of Iberian tech is sunny.

Correction note: An earlier version of this story said that the system will pull in 300 000 cubic metres of water per minute. Mr Omer Wilson has since clarified that it should be 1,000 cubic metres of seawater per minute.