Canadian AI startup Cohere is merging with Germany-based Aleph Alpha, bolstered by a €500 million investment from retail giant Schwarz Group. The move aims to create a sovereign alternative in the AI landscape dominated by American players.

Aleph Alpha, known for its specialized language models targeting European enterprises and public institutions, will be incorporated into Cohere, which has reported $240 million in annual recurring revenue. Together, they hope to target highly-regulated industries such as defense, energy, finance, healthcare, manufacturing and telecommunications.

The partnership aligns with growing concerns about privacy and strategic technology dependencies, particularly amid increased tensions between the US and Europe. The new entity plans to operate under a Canadian-German framework but questions remain over its perceived sovereignty.

Despite this, investors see potential in a team of 250 people from Aleph Alpha complementing Cohere’s strengths. As part of the deal, Schwarz Group will become a strategic backer and lead investor in Cohere's Series E round at an estimated valuation of $20 billion.

The move comes as other AI companies also seek alternatives, with Musk's xAI considering a partnership with French Mistral AI and Cursor. The success or failure of such initiatives could redefine the global tech landscape, placing more sovereignty in local hands.