Cohere Merges with Aleph Alpha to Challenge US Giants

A Merger for Sovereign AI

The Canadian startup Cohere has recently announced its intention to merge with the German company Aleph Alpha. This decision, approved by the governments of both countries, aims to provide a sovereign alternative for businesses in a sector of artificial intelligence largely dominated by American giants such as Microsoft and Google. Sovereign AI is defined by systems where companies and governments retain full control over their data, thus avoiding routing it through American technological infrastructures.

Cohere Takes the Lead

Although both Cohere and Aleph Alpha are recognized for their advancements in developing large language models, this merger is not an alliance of equals. Cohere, recently valued at $6.8 billion, will lead the new entity that will incorporate Aleph Alpha, pending approval from authorities and shareholders. This operation underscores Cohere's dominant position in this strategic alliance.

The Crucial Role of the Schwarz Group

The Schwarz Group, a German retail conglomerate, plays a central role in this merger. Already a shareholder in Aleph Alpha, it fully supports the acquisition and will invest €500 million in the new entity. In return, the Schwarz Group plans to integrate this entity into its sovereign cloud platform, STACKIT, managed by its IT division, Schwarz Digits. This provides a major enterprise client for its cloud business.

An Ambitious Valuation

To finance this merger, Cohere is raising a new funding round, a Series E, with the Schwarz Group as the lead investor. The combined valuation of the new entity is estimated to be around $20 billion, according to the German economic media outlet Handelsblatt. This impressive figure contrasts with the current revenues of both companies: while Cohere reported $240 million in annual recurring revenue in 2025, Aleph Alpha had previously generated little revenue and incurred significant losses. Investors are betting that this collaboration will enhance their chances against much larger competitors.

Strategies and Outlook

The merger is expected to enable Cohere and Aleph Alpha to better compete with larger rivals. Both companies hope to attract clients in highly regulated sectors such as defense, energy, finance, healthcare, manufacturing, and telecommunications. Aleph Alpha has already developed specialized language models for European businesses and public institutions, such as the PhariaAI suite. However, a subsequent pivot away from building its own cutting-edge models and the departure of its co-founder and CEO Jonas Andrulis have left its strategy and leadership less clear, putting it in a weakened negotiating position.

Challenges and Complementarities

Despite these challenges, Aleph Alpha's team of 250 people and their expertise could complement those of Cohere. Aleph Alpha focuses on small language models, European languages, and tokenizers, which is complementary to Cohere's approach centered on large language models. "Their focus on small language models, European languages, and tokenizers is really complementary to ours, which is more focused on large language models," said Aidan Gomez, CEO of Cohere, during a press conference.

International Context and Other Alliances

The geopolitical context also plays a role in this merger. Canada and Germany, concerned about data privacy and security, have recently launched a Sovereign Technology Alliance to strengthen their capabilities in sovereign AI and reduce strategic technological dependencies. However, whether this initiative will be perceived as sufficiently sovereign by European organizations remains open. According to Aidan Gomez, Cohere will become a Canadian-German company, but this promise could be harder to uphold if the company goes public, placing ownership in the hands of global shareholders with no particular allegiance to either country.

Additionally, Elon Musk's AI startup, xAI, has reportedly discussed a three-way partnership with the French company Mistral AI and Cursor, which SpaceX has recently secured an option to purchase. However, it remains uncertain whether Mistral AI would be interested in partnering with xAI, an American company, as this could compromise its position as an alternative to American technologies that have boosted its revenues.