Who controls the internet — and has the power to turn it off?

Widespread government-driven internet shutdowns and the rise of national intranets are creating durable economic and geopolitical risks: AccessNow logged nearly 300 shutdowns in 54 countries in 2024, NetBlocks and other monitors counted 17 national blackouts of a week or more since 2019, and Iran’s recent blackout blocked roughly 99% of web traffic and entered its 24th day while relying on a $6bn National Information Network to preserve essential services. Historic examples show material economic costs (Egypt’s five-day 2011 blackout cost an estimated $90m), and the article highlights growing policy responses — from EU push for European cloud sovereignty to UK legal powers to restrict networks — that could reshape demand for cloud, telecom, defense and censorship-evasion technologies. Hedge funds should monitor demand shifts for cloud and telecom resilience, defence/electronic-warfare suppliers, and regulatory-driven reshoring initiatives that could reallocate capex and create winners and losers in infrastructure and cloud services.

Analysis

Market structure: Internet sovereignty accelerates demand for on‑premises, sovereign cloud and local data‑centres while compressing addressable market for US hyperscalers in sensitive regions. Expect 5–15% market share shift in EU/EM cloud spend toward local or hybrid suppliers over 2–4 years; cybersecurity vendors lose telemetry-driven upsell during blackouts, compressing near‑term ARR growth by single‑digit percentages in affected markets.

Risk assessment: Tail risks include government seizures of local infra, extraterritorial sanctions forcing abrupt service withdrawal, or large-scale BGP/DNS manipulation causing multiweek outages — these can hit revenue recognition and drive credit spread widening for affected tech issuers within days to weeks. Hidden dependencies: critical services (payments, healthcare) riding public cloud create systemic operational risk; catalysts to accelerate change are EU/UK sovereign cloud legislation and another high‑profile outage within 30–180 days.

Trade implications: Tactical shorts on names most exposed to regulatory decoupling (MSFT, CRWD) and longs in data‑centre/sovereign cloud plays and defense/telecom infrastructure are warranted. Implement 1–3% portfolio-sized directional positions: buy selective data‑centre REITs/telecom infra and defense suppliers over 3–24 months, hedge with 3‑6 month put spreads on MSFT/CRWD; rotate 3–5% from high‑multiple growth tech into infrastructure/value over next 6 months.

Contrarian angles: Consensus treats hyperscalers as only losers — they also sell sovereign/hybrid solutions and will capture some reshoring capex, so outright permanent shorts may be overdone. Historical parallels (telecom nationalisation, post‑9/11 security spend) show initial volatility followed by consolidated winners; pursue relative value (long EM local cloud suppliers vs short hyperscalers) with event triggers rather than blind directional bets.

Key Decisions for Investors

• Establish a 1.5–2.5% short position in MSFT via a 3‑month 25‑delta put spread to protect vs regulatory/extraterritorial risk; size to reduce beta exposure and close on any positive legislative clarity in EU/UK within 60 days.
• Open a 1% tactical short in CRWD using 3‑month ATM puts (or put spread) to hedge against reduced telemetry and ARR risk from national outages; reassess after quarterly results or a sector outage event.
• Allocate 2–4% long to data‑centre REITs and telecom infrastructure suppliers (e.g., Equinix/peer or regional sovereign cloud vendors) with a 6–24 month horizon to capture reshoring capex and sovereign cloud contracts; target companies with >50% domestic control of landing stations.
• Implement a pair trade: long AMZN 1.5% (AWS hybrid/sovereign offerings) vs short MSFT 1.5% to express relative resilience of diversified cloud revenue; rebalance if EU/UK passes concrete sovereignty procurement rules within 90 days.
• Monitor (within 30–90 days) three binary catalysts: EU/UK sovereign cloud legislation text, any new US extraterritorial sanctions, and a major global outage (>48 hours) — if two occur, increase infrastructure longs by +2% and widen protection on tech shorts.