What is Perplexity, the AI startup said to be catching Meta and Apple’s attention

AI search engine Perplexity, founded in 2022, has reportedly engaged in acquisition discussions with both Meta and Apple, signaling the intense competition among tech giants to enhance their AI capabilities. While no deals have materialized, the interest underscores Meta and Apple's strategic imperative to accelerate their AI product development, where they are perceived to lag competitors like Google and OpenAI, despite Perplexity facing its own challenges including stiff competition and content usage lawsuits.

Analysis

Reported acquisition discussions between AI startup Perplexity and tech giants Meta and Apple underscore the strategic urgency for these firms to bolster their AI capabilities amidst a perceived lag behind competitors like Google and OpenAI. For Apple, an acquisition could provide a viable AI search alternative for its Safari browser, a critical consideration as its multi-billion dollar default search agreement with Google faces Justice Department antitrust scrutiny. For Meta, the interest in Perplexity aligns with its aggressive M&A and talent acquisition strategy, which includes significant pay packages and a major investment in Scale AI, aimed at accelerating its product roadmap after delays in its flagship Llama model. However, Perplexity is not without its own challenges; it faces intense competition from established players like ChatGPT, where it commands a minor share of app downloads, and is embroiled in legal disputes with publishers like the BBC and Dow Jones over alleged copyright infringement. While talks with Meta did not culminate in a deal and discussions with Apple are reportedly in early stages, the situation clearly illustrates the high-stakes 'buy-versus-build' dilemma facing incumbents in what they believe is the next major technological shift.

Key Decisions for Investors

• Investors in Meta and Apple should view this M&A interest as confirmation of an aggressive strategy to close their perceived AI gap, and should monitor for further acquisitions in the space as a primary indicator of their strategic direction and capital deployment.
• For Apple investors, the exploration of a proprietary or acquired AI search engine is a key development to watch, as it could mitigate the significant risk associated with the potential loss of Google's search revenue due to the ongoing antitrust lawsuit.
• The situation presents a tangible risk for Google, as any successful move by Apple to replace it as the default search provider on Safari would directly threaten a highly profitable revenue stream, making Apple's AI developments a key competitive metric to monitor.
• The legal challenges against Perplexity from major publishers highlight a systemic risk for the generative AI sector, and investors should factor in potential litigation costs and regulatory headwinds for companies whose models rely heavily on third-party web content.