If Perplexity can poach just a fraction of the $175 billion Google generated from searches last year, it would justify the high valuation.
Four months after raising $250 million from investors including Nvidia and Jeff Bezos, the AI search startup Perplexity AI reportedly seeks an additional $500 million.
According to media reports , the funding round values the company at between $8 billion and $9 billion, making it one of the hottest AI startups. But with the likes of Google, Microsoft, and OpenAI all competing for a slice of the AI search market, betting on Perplexity could be risky.
From Zero to Eight Billion in Two Years
Perplexity AI's journey to its current valuation has been meteoric.
Founded in 2022, the company raised $11.5 million in seed funding that same year, establishing the precedent for its explosive growth.
By the time it closed a $25.6 million Series A round in April 2023, Perplexity's valuation had swollen to an estimated $500 million.
That figure jumped again in January this year when a $73.6 million Series B boosted the startup's valuation to $3 billion.
The most recent round, which included participation from Nvidia and Bezos Expeditions, landed Perplexity on the tech sector's radar and cemented its position among the world's most valuable AI developers.
The current talks to raise additional capital at an $8 billion valuation reflect the significant investor appetite for AI technologies that promise to revolutionize how information is searched and processed.
Behind the lofty valuation target lies an appeal that would get any investor's heart racing: the prospect of usurping Google as the world's dominant search engine
AI Firms Target Lucrative Search Market
Google's dominance of the market for online search services has stood at around 90% since the mid-2000s.
In 2023, Google generated $175 billion in advertising revenue from online searches, accounting for nearly 60% of its total earnings that year.
But if there was ever a technology that could disrupt the status quo, it's generative AI. And for a company like Perplexity AI, stealing even a small slice of Google's market share would justify a multi-billion dollar valuation.
Competition in AI Search
After OpenAI released ChatGPT in 2022, Google's management reportedly declared a "code red," anticipating that unless they acted quickly, the new chatbot could threaten its primary source of revenue.
Today, the competition is even more intense. With OpenAI's SearchGPT taking direct aim at Google's dominance, the Big Tech giant has pushed out features like AI Overviews to protect its home turf.
To understand the threat to Google, recall that in 1990, the most valuable companies in the world were Big Oil corporations and large auto manufacturers. Within two decades, the rise of personal computers and the internet caused a complete realignment of the economic hierarchy.
Just as the industrial giants of yesteryear were eclipsed by a new generation of Silicon Valley upstarts, disruptive AI players like Perplexity could do the same to Google and its peers in the years ahead.