French artificial intelligence startup Mistral AI is in early talks to raise about €3 billion, or roughly $3.5 billion, in a new funding round that could value the company at around €20 billion, according to people familiar with the discussions.

The prospective deal would give the Paris-based company a fresh infusion of capital as it tries to keep pace with far larger rivals in the United States and China. Mistral has become one of Europe’s best-known AI startups and is seen by many investors and policymakers as a key regional challenger in a market dominated by much bigger players.

The talks are still at an early stage, and the final terms could change, the people said. The valuation could also climb if investor demand is strong. Because the discussions are private, the sources asked not to be identified.

If completed on those terms, the round would mark a sharp increase in Mistral’s valuation. The company was valued at €11.7 billion when it last raised money in September, underscoring the continued appetite for AI businesses even as the technology sector faces mounting questions about the cost of building and running advanced models.

Mistral has been building its profile as a European AI champion at a moment when the industry’s biggest firms are pouring money into computing infrastructure, model training and product development. That spending has become a defining feature of the global AI race, where access to chips, data centers and cloud capacity can determine how quickly a company can scale.

For startups such as Mistral, raising large sums of capital is often essential to remain competitive. The cost of training and serving frontier AI models has risen sharply, and smaller companies must frequently rely on outside funding to expand their computing resources and commercial offerings.

The reported fundraising discussions also come amid a broader wave of investor interest in AI companies, including some of the industry’s most prominent names. The market has continued to reward firms that are seen as leaders in generative AI, despite ongoing debate about whether the sector’s spending will produce returns fast enough to justify it.

Mistral was founded in France and has emerged as one of the few European startups with the scale and visibility to compete globally in foundation models. A new round at a much higher valuation would likely reinforce its status as a flagship technology company for the region.

Still, as with many private funding negotiations, there is no guarantee a deal will be finalized. Investors, valuation and other terms can shift as talks progress. For now, the discussions point to continued momentum behind Mistral and to the high price of staying in the AI race.