By Supantha Mukherjee and Kenrick Cai

PARIS (Reuters) -Mistral on Tuesday launched Europe's first AI reasoning model, which uses logical thinking to create a response, as it tries to keep pace with American and Chinese rivals at the forefront of AI development.

The French startup has attempted to differentiate itself by championing its European roots, winning the support of French President Emmanuel Macron, as well as making some of its models open source in contrast to the proprietary offerings of OpenAI or Alphabet's Google.

Mistral is considered Europe's best shot at having a home-grown AI competitor, but has lagged behind in terms of market share and revenue.

Reasoning models use chain-of-thought techniques - a process that generates answers with intermediate reasoning abilities when solving complex problems.

They could also be a promising path forward in advancing AI's capabilities as the traditional approach of building ever-bigger large language models by adding more data and computing power begins to hit limitations.

For Mistral, which was valued by venture capitalists at $6.2 billion, an industry shift away from "scaling up" could give it a window to catch up against better capitalized rivals.

China's DeepSeek broke through as a viable competitor in January through its low-cost, open-sourced AI models, including one for reasoning.

OpenAI was the first to launch its reasoning models last year, followed by Google a few months later.

Meta, which also offers its models open-sourced, has not yet released a standalone reasoning model, though it said its latest top-shelf model has reasoning capabilities.

Mistral is launching an open-sourced Magistral Small model and a more powerful version called Magistral Medium for business customers.

"The best human thinking isn't linear - it weaves through logic, insight, uncertainty, and discovery. Reasoning language models have enabled us to augment and delegate complex thinking and deep understanding to AI," Mistral said. 

American companies have mostly kept their most advanced models proprietary, though a handful, such as Meta, has released open-source models. In contrast, Chinese firms ranging from DeepSeek to Alibaba have taken the open-source path to demonstrate their technological capabilities.

Mistral Small is available for download on Hugging Face's platform and can reason in languages including English, French, Spanish, Arabic and simplified Chinese.

(Reporting by GV De Clercq and Supantha Mukherjee; Editing by Stephen Coates)