France's Mistral on Tuesday cemented its position as Europe's top AI hope against far larger US and Chinese competitors after a record fundraising round and a tie-up with chipmaking equipment heavweight ASML.

The 1.7 billion euro ($2 billion) cash infusion values Mistral at 11.7 billion euros, double its heft last year but a fraction of the $183 billion price tag placed on US firm Anthropic this month.

ASML, a key producer of the machines that churn out the chips powering artificial intelligence models, was the lead investor, stumping up 1.3 billion euros to give the Dutch company an 11 percent stake in Mistral.

The French firm has been touted as a European AI champion as technological sovereignty concerns fester between the European Union and the United States under President Donald Trump.

"By bringing together a world-class industrial firm and a leading French startup, Europe is demonstrating its ability to build strong digital sovereignty," Clara Chappaz, digital minister in the French government MPs voted out of office on Monday, told AFP.

The Dutch firm's boss Christophe Fouquet said he hoped for "innovative products and solutions enabled by AI," from the deal.

Mistral chief executive Arthur Mensch said its AI could help ASML "solve current and future engineering challenges" in both hardware and software.

ASML said it would gain a seat on Mistral's strategic committee, giving the Dutch firm "an advisory role in Mistral AI's future strategy and technology decisions".

ASML's Chief Financial Officer Roger Dassen will assume this role.

- 'Real alternative' -

Mistral's fundraising comes after months of rumours that it could be the target of a takeover bid by Apple, which has lagged other tech giants in developing its own AI.

The latest funding round "reaffirms the company's independence", Mistral said in its statement.

The company said that the founders together retain majority control.

But tying Mistral more closely into the wider European high-tech sector through ASML was necessary to compete, the founder of AI and data firm Ekimetrics Jean-Baptiste Bouzige told AFP.

"There's no way to be in the fight in this sector while remaining strictly French," he said, adding that "Europe is the appropriate scale" for a company like Mistral.

"Mistral can set itself up as an indispensable European player," benefiting from "ASML's industrial legitimacy that can increase its visibility in the ecosystem" worldwide, EY partner Franck Sebag commented.

Other players in the latest investment round included chip giant Nvidia, venture capital funds Index Ventures and Andreessen Horowitz and French public investment bank Bpifrance.

Mensch co-founded Mistral in 2023 after working for Google's DeepMind AI division, while fellow founders Guillaume Lample and Timothee Lacroix previously worked at Meta's AI lab.

The company said Tuesday that it has so far amassed client contracts worth 350 million euros a year.

It has opened offices in Paris, London, Luxembourg, New York, California's Palo Alto tech hub and Singapore. It has expanded to over 350 staff.

- Bet on 'open source' -

Mistral's key products include Le Chat, a large language model (LLM) chatbot competing with the likes of ChatGPT from the sector's American heavyweight OpenAI.

But OpenAI, headed by Sam Altman, operates on a different scale: It is reportedly in talks to allow employees to sell shares at a $500 billion valuation.

As well as text, Mistral offers generative AI models capable of turning out images and computer code.

One factor setting it apart has been its practice from the beginning of releasing "open source" versions of its AI models, allowing other developers to run and modify them for their own purposes.

This year Mistral has announced a slew of partnerships, including with American chip giant Nvidia to create a cloud computing platform, or with Saudi investment fund MGX to build an AI campus outside Paris.

Mistral has also signed a deal with Agence France-Presse (AFP) for Le Chat to draw on the news agency's decades of archives in six languages to generate responses to users' queries about news and current events.