Strategic Partnership Between Snap and Perplexity AI

Snap shares rose 18% in Thursday morning trading following the announcement of a $400 million partnership with Perplexity AI. This development reassured investors that the social media company's capabilities in the AI race could catch up with larger competitors.

After the market closed on Wednesday, the news led to a 16% increase in Snap shares. Perplexity's AI-powered search engine will be integrated into Snapchat, positioning the platform more strongly against competitors favored by global marketers, such as TikTok and Meta.

RBC analysts stated, "The effects of computing costs over time are uncertain, but it's quite interesting that Snap has managed to offer a product that approaches Meta AI with a limited budget." CEO Evan Spiegel emphasized that responses to user queries would be managed by Perplexity through a chatbot within Snapchat, and this data would not be used for advertising purposes.

The revenue from this agreement is expected to start being observed by 2026. Initially, the startup will pay Snap a combination of cash and stock totaling $400 million within one year.

On Wednesday, Snap surpassed analyst estimates for third-quarter revenue. For the fourth quarter, it projected revenue between $1.68 billion and $1.71 billion, indicating a positive outlook compared to analyst predictions of $1.69 billion. Snap's results followed positive quarterly reports from Meta, Alphabet, and Reddit.

On the other hand, Pinterest missed its fourth-quarter revenue forecasts last Tuesday and expressed concerns about soft ad spending in the U.S. and Canada. While Snap has lost 32% of its value since the beginning of the year, Pinterest has seen an 11% decline.