Strategic Collaboration Between Snap and Perplexity AI

Snap shares rose by 18% in Thursday morning trading following the announcement of a $400 million partnership with Perplexity AI. This development instilled confidence in investors that the social media company could catch up to its larger rivals in the artificial intelligence race.

With this announcement made after the market closed on Wednesday, Snap shares appreciated by 16%. Perplexity's AI-powered search engine will be integrated into Snapchat, thereby strengthening Snap’s position against competitors favored by global marketers like TikTok and Meta.

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

The revenue generated from this deal is expected to be observable by 2026. Initially, the startup will pay Snap a combination of cash and stock totaling $400 million within a year.

On Wednesday, Snap exceeded 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 the analyst forecast of $1.69 billion. Snap's results came after positive quarterly reports from Meta, Alphabet, and Reddit.

On the other hand, Pinterest missed fourth-quarter revenue estimates last Tuesday and expressed concerns about soft advertising 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.