ASML Holdings NV’s €1.3bn investment in Mistral gives the French startup a valuable dose of capital and credibility as it seeks to build an artificial intelligence (AI) champion for Europe. Yet Mistral still has to prove it can survive in an industry dominated by much larger American and Chinese competitors.

The Paris-based company’s valuation will rise to €11.7bn as part of the ASML-led funding round, putting it among the most valuable private companies in Europe just two and a half years after its founding. Mistral is the only firm on the continent building the kind of large-language model that competes with the likes of OpenAI and DeepSeek, yet it is still tiny compared with leaders like OpenAI, which just reached a valuation of $500bn during a secondary share sale.

Mistral and ASML framed the deal — a rare alliance between the region’s two most vital firms in AI — around optimising industrial manufacturing. That positioning shows how the startup is now trying to distinguish itself in an AI market dominated by the US and China. Roughly half of Mistral’s €1.4bn in total contracts — which include deals with BNP Paribas, Stellantis NV and CMA-CGM — come from within the EU. French president Emmanuel Macron has directly encouraged blue-chip French companies to work with the start-up.

Jeannette zu Fürstenberg, a managing director for General Catalyst, a Mistral backer, called ASML’s move an important step for Europe’s AI sovereignty and “a super interesting blueprint for other European industrial suppliers.”

The investment comes at a moment in which European leaders are looking for ways to reduce reliance on American-made tech, and has drawn parallels to OpenAI’s lucrative partnership with Microsoft. That arrangement provided the startup with the generous financing and top-tier infrastructure that has enabled it to dominate the market for large-language models.

German software giant SAP SE, one of the bloc’s most valuable companies by market capitalisation, has held preliminary talks with Mistral about a potential investment, according to people familiar with the talks. Christian Klein, the company’s CEO, has been vocal about the need for Europe to prioritise AI use in industry over focusing on data centre construction. A representative for SAP declined to comment on Mistral, and a representative for Mistral didn’t return a request for comment.

As Mistral’s foreign competitors pour hundreds of billions of dollars into training, inference and computing power for AI models, however, analysts are wondering whether ASML’s investment is too little, too late. Questions are also swirling about how these two companies, which are several layers removed from each other in the AI value chain, will be able to complement each other’s businesses.

The seeds of the deal were planted when Christophe Fouquet, chief executive of ASML, and Arthur Mensch, the co-founder and chief executive of Mistral, met 18 months ago and again at the AI Action Summit in Paris earlier this year.

While discussing possible areas of collaboration, they zeroed in on scanner metrology as a possible option. ASML relies on internal process control machinery, known as a metrology system, to spot contaminants and errors on the millions of semiconductor wafers that companies like TSMC and Intel produce with ASML’s lithography machines. That system is limited in its capacity to analyse huge outflows of data, however, which is where Mistral stands to be useful.

“We started to discuss those use cases,” Fouquet said, in an interview with Bloomberg, of his conversations with Mensch.

Takumi Okano, an analyst at Bloomberg Intelligence, noted that ASML is unique among chip equipment makers in not having expanded into fields such as chip-cleaning. “ASML has one single focus and that’s lithography,” he said. That could pose a business risk down the line as experts warn that chip miniaturisation may be approaching its technological limit. “The stake in Mistral could help them diversify,” he said.

From Mistral’s perspective, the alliance could give the startup room to grow. Large-language models are “all finding their own markets,” said Paul Murphy, a partner at Lightspeed Venture Partners who sits on the board of Mistral. “For Mistral, the market they’ve found is a business with a lot of complexity that knows they have a lot of inefficiencies.”

Some analysts, however, see the deal as driven by another set of interests.

“We believe the investment is driven more by geopolitical motivations of supporting and developing a European AI company and ecosystem,” Jefferies analyst Janardan Menon wrote in a note. “We do not think ASML needed to make an investment in an AI company to take advantage of AI models in its lithography products.”

Sander Tordoir, chief economist at the Centre for European Reform, echoed this thought, describing the move as “a bet on the future of a sovereign tech ecosystem.”

ASML has good reason to be concerned about geopolitics. In 2019, a year after the US-China trade war began, the Trump administration lobbied the Dutch government to block shipments of ASML’s most advanced machine to China. The company’s stock suffered under stringent export controls implemented during the Biden administration, and the tariffs imposed in Trump’s second term have created significant complications. Its shares, which remain little changed this year, gained 1% last Tuesday.

One of Mistral’s biggest points of appeal within Europe is its ability to ensure data privacy. Under the 2018 Cloud Act, US law enforcement has the power to force American tech companies to turn over data, including data stored abroad. With Trump in office, concern around this has only deepened.

Fouquet has denied that ASML’s investment was primarily motivated by geopolitics. Mensch, the Mistral co-founder, described the fact that both companies are European as “the cherry on the cake.”

Even with the ASML investment, however, Mistral has a long way to go. It lacks big international customers, and has not reached the commercial momentum of its US peers or raised anywhere near their levels of funding. In addition to OpenAI, Anthropic and Elon Musk’s xAI have captured tens of billions in funding.

Still, Mistral has one significant advantage.

“Any company in Europe would say the Trump administration is pushing everyone to be more sovereign,” said Bart Groothuis, a Dutch politician in the European Parliament, in an interview with Bloomberg.

“Tech sovereignty is not a choice any more,” he added. “It’s essential.”