ASML seeks Mistral-type startups to invest: the new strategy of the chip giant

What happened?

ASML, the Dutch manufacturer of extreme ultraviolet (EUV) lithography machines that are essential for producing the world's most advanced chips, has expressed its intention to make more investments in emerging startups, following the model of its recent bet on Mistral AI. In an interview with Sifted, CEO Christophe Fouquet stated: "We are looking for more opportunities like Mistral." The company already invested in Mistral AI's $600 million funding round in 2024, and now plans to expand its portfolio of stakes in AI and related technology startups. According to Sifted, Fouquet indicated that ASML is willing to invest between €5 million and €20 million per startup, focusing on companies developing software, algorithms, or hardware complementary to its lithography systems. The company has already made around 30 investments through its ASML Ventures arm, in startups such as Germany's Siltectra (later acquired) and Israel's Lumus.

Why is it important?

ASML is a key player in the semiconductor supply chain, with a virtual monopoly on the EUV machines needed to manufacture 5nm and smaller chips. Its foray into investments in AI startups indicates that the company is looking to diversify its revenue streams and not rely solely on hardware sales. Moreover, Mistral AI represents a success story in European artificial intelligence, competing with giants like OpenAI and Anthropic. By backing startups like Mistral, ASML gains early access to innovations that could influence future chip demand, while strengthening the European tech ecosystem. The investment in Mistral AI was not ASML's first foray into AI: in 2022, the company invested in French startup LightOn, specializing in language models. However, the bet on Mistral, with a valuation close to $2 billion, marks a qualitative leap in ASML's commitment to artificial intelligence.

Market consequences

This strategy could have several repercussions:

• For ASML: Investments in startups allow it to obtain financial returns while ensuring a flow of innovation that can translate into new hardware requirements for its lithography machines. For example, if a startup develops a chip architecture requiring even greater lithography precision, ASML could adapt its machines to meet that demand. Additionally, these investments can generate recurring revenue through licenses or services.
• For startups: Having the backing of a giant like ASML not only provides capital but also credibility and access to a network of contacts in the semiconductor industry. Startups backed by ASML can benefit from technical assistance and the possibility of testing their designs on the world's most advanced lithography machines.
• For the AI market: The entry of a chip manufacturer as an active investor in AI could accelerate the convergence between hardware and software, driving the development of specialized chips for AI workloads. This is especially relevant at a time when demand for AI chips is skyrocketing: NVIDIA reported record revenue of $60 billion in its last fiscal year, and the AI chip market is expected to reach $400 billion by 2027. By investing in AI startups, ASML seeks to ensure that its machines remain the platform of choice for manufacturing the most advanced chips.

What readers should know

ASML is not the only chip manufacturer investing in AI startups; NVIDIA has made multiple acquisitions and investments in the sector, such as the purchase of Mellanox for $6.9 billion in 2020. However, ASML's strategy differs in its focus on European startups and its willingness to hold minority stakes without seeking control. The company has created a specific investment vehicle, ASML Ventures, which has already backed several companies such as Germany's Q.ant (quantum computing) and France's Prophesee (neuromorphic sensors). Readers should understand that these investments are not philanthropic: they aim to ensure that the European startup ecosystem continues to innovate and demand ASML's machines. Furthermore, in a geopolitical context where exports of EUV machines to China are restricted, investing in European startups strengthens the continent's technological autonomy and reduces ASML's dependence on the Chinese market, which accounted for 14% of its revenue in 2023.

"Artificial intelligence will require more computing power, and that means more chips, and therefore more lithography machines. Investing in startups allows us to be at the center of that revolution," Fouquet stated in the interview.

Historical context

ASML has gone from being a manufacturer of lithography equipment to a pillar of tech geopolitics, as its machines have been subject to export restrictions to China since 2019. Investing in AI startups could also be a way to balance its dependence on the Chinese market, which accounted for around 15% of its revenue before the restrictions. By betting on European innovation, ASML reinforces its position in a continent seeking technological autonomy, especially after the approval of the European Chips Act in 2023, which mobilizes €43 billion to strengthen the semiconductor industry. Historically, ASML has been an active investor: in 2012, it invested in US startup Cymer, which it later acquired for $2.5 billion to secure the supply of light sources for its EUV machines. This new strategy of investing in AI startups is a natural evolution of its business model, seeking to vertically integrate key technologies for the next generation of chips.

Conclusion

ASML's search for new Mistral-type startups is a clear sign that the company wants to be more than a hardware supplier. By integrating AI investment into its corporate strategy, ASML positions itself as a key player in the next wave of technological innovation, with implications ranging from the chip market to European technological sovereignty. With a market capitalization of over €300 billion and a monopoly on EUV machines, ASML has the resources and influence to shape the AI startup ecosystem in Europe. If successful, it could replicate the investment model of Intel Capital, which has generated significant returns and helped Intel stay relevant in a changing market. For readers, this means the boundary between hardware and software is increasingly blurred, and ASML's investment decisions can be an early indicator of where the semiconductor industry is headed.