Perplexity AI Secures $500M in Funding, Valued at $14B: Is Google’s Search Traffic Plummet Fueling the Rise of AI Search?

Z
Curated byZhang San
3 min read
21 May 2025

San Francisco, May 19, 2025 — Perplexity AI, a trailblazer in AI-powered search, has announced a $500 million funding round, propelling its valuation to an impressive $14 billion. Led by Accel, with continued support from heavyweights like Nvidia, Jeff Bezos’ Expedition Fund, and SoftBank Vision Fund, this round marks a near 27-fold increase from its $520 million valuation in early 2024. The news comes amid reports of a significant drop in Google’s search traffic, spotlighting Perplexity’s potential to disrupt the traditional search market.

Founded in 2022 by former OpenAI researcher Aravind Srinivas, Meta research scientist Denis Yarats, and programming prodigy Johnny Ho, Perplexity AI is redefining search with its AI-driven “answer engine.” By combining natural language processing (NLP) and real-time web indexing, it delivers precise, citation-backed answers, challenging the conventional link-based search model.

Google’s Search Traffic Decline: A Window for AI Search

Recent reports have sent shockwaves through the tech industry, highlighting a decline in Google’s search traffic. In May 2025, Apple SVP Eddy Cue testified in the U.S. Department of Justice’s antitrust case against Google, revealing that Google search queries on Safari browsers dropped in April 2024 for the first time in 22 years. Cue attributed this shift to users gravitating toward AI-driven search tools like Perplexity AI and OpenAI’s SearchGPT. Apple is reportedly considering integrating these AI search options into Safari, intensifying pressure on Google. The news triggered a 7.51% single-day plunge in Alphabet’s stock, wiping out approximately $140 billion in market value.

Internal Google documents acknowledge the “inevitable” shift of search traffic to AI tools like Gemini and ChatGPT. Publishers have reported significant traffic losses due to Google’s AI Overviews, with outlets like the UK’s MailOnline noting a 56% drop in click-through rates (CTR) when AI Overviews appear at the top of results. Some keywords saw traffic plummet from 6,000 clicks to just 100. Studies indicate that AI search tools, including Perplexity, have siphoned 96% of referral traffic from traditional search engines, severely impacting news sites and blogs.

This seismic shift in user behavior provides a golden opportunity for Perplexity to capture market share and underscores its rising prominence in the AI search landscape.

Revenue, Subscriptions, and Growth: Drivers of Skyrocketing Valuation

1. Robust Revenue Growth

Perplexity’s annualized recurring revenue (ARR) surged from $5 million in January 2024 to $35 million by August, with projections for 2025 exceeding $150 million, and some optimistic estimates reaching $750 million to $1 billion. The company achieved a staggering 600% revenue growth rate in 2024, far outpacing traditional search industry benchmarks.

This growth is driven by its subscription model: Perplexity Pro ($20/month) and Enterprise Pro ($40/month) offer premium features like multi-model access (e.g., GPT-4o, Claude 3.7), file analysis, and image generation. In 2024, Perplexity’s paid subscriber base is estimated at 100,000 to 200,000, contributing to its $50 million annual revenue. By 2025, paid subscribers could surpass 300,000, fueling further revenue growth.

2. Successful Subscription Model

Perplexity’s freemium model has attracted a broad user base, with its free tier offering basic search capabilities and the Pro tier enhancing user experience with features like query clarification, file uploads (up to 25MB), and API access. In Q1 2024, monthly active users soared from 2 million in 2023 to 15 million, a 650% increase. By late 2024, monthly queries reached 400 million, with users searching at roughly three times the frequency of Google users, indicating strong engagement.

The Enterprise Pro plan has expanded revenue streams by enabling businesses to search internal documents and supporting financial queries (e.g., stock prices and company reports). Perplexity plans to introduce “sponsored follow-up questions” to diversify revenue but must carefully balance ads with its ad-free search appeal to retain user trust.

3. User and Traffic Growth

Perplexity’s traffic growth is remarkable. Monthly visits skyrocketed from 35.28 million in September 2023 to 159.7 million by March 2025, a 353% increase. Weekly queries grew from 25 million to 100 million in 2024, with projections of 500 million monthly queries (30 million daily) in 2025.

This growth stems from its targeted positioning toward researchers, journalists, and knowledge workers seeking efficient, reliable information retrieval. The popularity of its Chrome extension, voice search, and mobile apps has further boosted accessibility and user adoption.

Valuation Potential Analysis

Perplexity’s $14 billion valuation reflects investor confidence in its ability to disrupt the search market, driven by the following factors:

  • Market Opportunity: The AI search market is projected to reach $500 billion by 2030, with Perplexity holding a 6.2% share of the emerging segment, outpacing many competitors.
  • Technological Innovation: By integrating large language models with real-time web indexing, Perplexity delivers citation-backed answers, addressing the information noise of traditional search and the “hallucination” issues of AI models.
  • Google’s Traffic Decline: The reported drop in Google’s search traffic, coupled with Apple’s potential integration of Perplexity into Safari, positions it to capture a growing user base.
  • Strategic Partnerships: Potential collaboration with Apple and global expansion through SoftBank and Deutsche Telekom (reaching over 300 million users) bolster its market prospects.
  • Investor Backing: Support from Nvidia, Jeff Bezos, and SoftBank enhances credibility and provides substantial capital.
  • High-Growth Metrics: A 600% revenue increase, 353% traffic growth, and 650% user growth justify its high price-to-sales ratio (approximately 140x).

Technical Features and Future Directions

Perplexity’s core technical strengths include:

  • Real-Time Web Indexing: Delivers up-to-date information for breaking news and dynamic data queries.
  • Multi-Model Support: Allows users to switch between models like GPT-4o and Claude 3.7, catering to diverse needs in academia, programming, and finance.
  • Citation Transparency: Every answer includes sources from academic papers, news, and social media, enhancing credibility.
  • Multimodal Capabilities: Supports file uploads, image generation (via DALL-E 3, FLUX 1), and code generation, ideal for professional use cases.
  • Pages Feature: Launched in May 2024, this feature enables users to create customizable research reports, boosting productivity.

Future Directions:

  1. Comet Browser: Perplexity aims to challenge Google Chrome with its AI-agent browser, Comet, offering a seamless AI search experience.
  2. Enterprise Expansion: The Enterprise Pro plan targets industries like finance, law, and tech for internal data search and analysis.
  3. Ad Model Exploration: Introducing lightweight ads like “sponsored follow-up questions” while preserving user experience.
  4. Global Market Penetration: Partnerships with SoftBank and Deutsche Telekom will expand its reach in Asia and Europe.
  5. Ecosystem Integration: Through its acquisition of Carbon, Perplexity supports seamless search within tools like Notion, Google Docs, and Slack.

Challenges Ahead

Perplexity faces significant hurdles:

  1. Google’s Dominance: Despite its traffic decline, Google retains a 90% market share, with AI Overviews and Gemini models posing ongoing threats.
  2. OpenAI Competition: SearchGPT’s real-time search and conversational capabilities could erode Perplexity’s market share.
  3. Copyright Controversies: Accusations from The New York Times and News Corp over unauthorized content use raise legal and reputational risks, despite Perplexity’s revenue-sharing initiatives.
  4. Monetization Balance: Ads risk undermining its ad-free appeal, while subscription revenue alone may not sustain growth.
  5. Technical Costs: High computational costs for large language models and real-time search demand infrastructure optimization to maintain profitability.

Conclusion

Perplexity AI’s $14 billion valuation is a testament to its technological innovation, market potential, and ability to capitalize on Google’s recent search traffic decline. With robust revenue growth, a thriving subscription base, and explosive traffic increases, Perplexity is emerging as a formidable challenger to Google. Its technical strengths and multimodal capabilities deliver efficient, reliable search experiences, while plans for the Comet browser and enterprise expansion pave the way for future growth. However, navigating Google’s dominance, OpenAI’s competition, copyright issues, and monetization challenges will be critical to sustaining its trajectory in the fiercely competitive AI search landscape.