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Perplexity, an artificial intelligence-driven search engine, has closed its fourth funding round this year, tripling its valuation to $9bn as it seeks to compete with offerings from Google and OpenAI.

The $500mn round was led by Institutional Venture Partners, with involvement from Nvidia, New Enterprise Associates, B Capital and T Rowe Price, according to multiple people with knowledge of the deal. Previous investors have included SoftBank’s Vision Fund 2, Nvidia and Amazon founder Jeff Bezos, as well as several prominent names from the AI industry such as OpenAI co-founder Andrej Karpathy and Meta’s chief AI scientist Yann LeCun.

The San Francisco-based group has grown rapidly this year, with its product receiving hundreds of millions of queries a month. It has 15mn monthly active users with most of that traffic coming from the US.

The new funding will help Perplexity compete with west coast rivals in an increasingly fierce fight for engineers. “The talent war for AI is like no other time before,” according to Ali Ghodsi, co-founder and chief executive of Databricks, the AI and data analytics company that announced a $10bn fundraising round on Tuesday.

Perplexity is seeking to capitalise and improve on the search advertising system pioneered by Google, in which marketers bid to have a sponsored link placed against search queries. It is in talks with major brands to pilot advertising on its platform.  

In a sign of growing competition in the space, AI companies have recently targeted the search market by linking up chatbots to the internet. This week, OpenAI rolled out web searching for its popular ChatGPT product, while Anthropic’s Claude can perform searches through a feature called “computer use”.

Google and Microsoft, which are leaders in the $300bn digital advertising world, have also recently incorporated large language models, which power AI chatbots and make results more conversational, into their search offerings.

The latest round has pushed Perplexity’s valuation higher by nine-fold since the start of the year, in another sign of how hot start-ups developing new AI tools can draw in hundreds of millions or even billions of dollars in investment. 

After OpenAI’s $6.6bn fundraising in October — one of the largest in Silicon Valley — one person close to the company said Perplexity was inundated with unsolicited interest from new investors.

Run by former Google intern Aravind Srinivas, Perplexity raised $250mn this summer, on top of previous funding rounds in January and April.

Perplexity makes money through subscriptions. It says its annualised revenues — a projection of full-year revenues based on extrapolating the most recent month’s sales — have grown from $5mn in January to $35mn in August.

The spate of deals for lossmaking AI start-ups has stoked concern among some investors that rising valuations in the sector show all the hallmarks of a bubble, however. But even those who argue most AI valuations are increasingly detached from reality are willing to stake bets on companies they believe could be winners.

Perplexity and T Rowe Price declined to comment. IVP, B Capital, NEA and Nvidia did not immediately respond to a request for comment. The closing of the round was first reported by Bloomberg.

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The Federal Reserve cut its benchmark interest rate by a quarter of a percentage point but signalled a slower pace of easing next year, sending the dollar racing higher and US stocks lower. 

The Federal Open Market Committee voted on Wednesday to reduce the federal funds rate to 4.25-4.5 per cent, its third cut in a row. The decision was not unanimous, with Cleveland Fed president Beth Hammack casting a dissenting vote, with a preference for holding rates steady.

Officials’ economic projections released alongside the rate decision pointed to fewer reductions than previously forecast for 2025, underscoring policymakers’ concern that cutting borrowing costs too quickly could undermine efforts to cool price growth across the world’s biggest economy. Policymakers also lifted their projections for inflation.

Fed chief Jay Powell said that following Wednesday’s cut, the central bank’s policy settings were “significantly less restrictive” and could now be “more cautious” as they consider additional easing. He also characterised the December decision as a “closer call” than at previous meetings.

Inflation was moving “sideways”, Powell added, while risks to the labour market had “diminished”.

Wall Street bank Morgan Stanley said the Fed’s forecasts for 2025 were “much more hawkish than we anticipated”.

US government bonds fell in price after the Fed decision, with the policy-sensitive two-year Treasury yield rising 0.08 percentage points to 4.33 per cent. The dollar jumped 1 per cent against a basket of six peers, while Wall Street’s S&P 500 share index dropped 1 per cent.

The Fed’s goal is to apply enough pressure on consumer demand and business activity to push inflation back to the US central bank’s 2 per cent target without harming the jobs market or the economy more broadly.

Officials now expect to cut the benchmark rate by half a percentage point next year to 3.75-4 per cent, down from the full percentage point reduction predicted in September’s “dot plot”. Four officials pencilled in one or no additional cuts next year.

Most saw the policy rate falling to 3.25-3.5 per cent by the end of 2026, also higher than in the forecast from three months prior. 

They also raised their forecasts for inflation once food and energy prices are stripped out to 2.5 per cent and 2.2 per cent in 2025 and 2026, respectively, while they predicted the unemployment rate would steady at 4.3 per cent for the next three years.

“In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the committee will carefully assess incoming data, the evolving outlook, and the balance of risks,” it said.

In a sign that the Fed is preparing to skip rate cuts at forthcoming meetings, the FOMC amended its language regarding future changes to its policy settings in its statement.

Wednesday’s decision was not the first this year that was opposed by a Fed official, after Michelle Bowman cast a dissent to September’s half-point reduction. That was the first time a governor voted against a decision since 2005.

The quarter-point cut was widely expected by financial markets, but came amid debate among officials over how quickly inflation was retreating towards the Fed’s 2 per cent target. The core personal consumption expenditures price index, the central bank’s preferred inflation gauge that strips out food and energy prices, rose at an annual rate of 2.8 per cent in October.

The Fed kicked off a new rate-cutting cycle in September with a bumper half-point cut, but fears about the labour market have ebbed since then and the economic outlook has brightened. That healthy state of the US economy has changed the calculus for officials as they try to settle on a “neutral” rate that neither constrains growth or drives it too high.

The central bank has described recent cuts as a “recalibration” of policy that reflects its success in knocking inflation from a peak of about 7 per cent in 2022.

On Wednesday, Powell said the Fed was in a “new phase in the process”, suggesting that the bar for future cuts would move higher as rates approached estimates of neutral.

Fed officials raised that estimate for the neutral rate again, with a majority now pencilling it in at 3 per cent. This time last year, they gauged it was 2.5 per cent.

The Fed meeting came just weeks before Donald Trump returns to the White House, having vowed to raise tariffs, deport immigrants and slash taxes and regulations. Economists recently polled by the Financial Times said the policy combination could trigger a new bout of higher inflation and hit growth.

Additional reporting by Eva Xiao in New York

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