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Call it Barbarians at the Prompt. Artificial intelligence hype and inflated valuations have led to some unorthodox and aggressive financial dealmaking. The latest instance is Perplexity’s unsolicited blockbuster approach for Google Chrome. On Tuesday the venture capital-backed group, whose latest private market valuation is a relatively modest $18bn, offered to purchase the web browser from Google for $35bn in cash.
The respective size of the two companies is not the only thing that makes this mooted deal odd. Another minor detail is that Chrome is currently not for sale, and is not going to be voluntarily put on the auction block by Google.
The Silicon Valley behemoth has, however, lost a competition lawsuit over its dominance of online search — a business that underpins its $2.5tn market capitalisation. As a result, Google is braced for a federal court to determine remedies. Among those put forth by the prosecution is a divestiture of the Chrome browser, which has been valued by analysts in the tens of billions of dollars.
Perplexity, then, may be trying to insert itself in that judicial proceeding or simply make a name for itself in a crowded AI marketplace. Its size and valuation for now lag those of the likes of OpenAI, xAI and Anthropic.
Perplexity is offering all cash and says it has venture capital funding to close the deal. Presumably, those financiers believe in the technology and user synergies between Chrome and Perplexity’s own web navigator called Comet, which the company claims “powers a shift from browsing to thinking”.
Other “funny money” transactions in the AI space fall into this basket because — rather reminiscent of the dotcom era — they involve all-stock mergers using highly valued equity. Just think of the combination of X and xAI at a combined $135bn private market value, a related party transaction that saw huge valuations ascribed to both companies. CoreWeave, meanwhile, wants to use its public shares to buy out its vendor, Core Scientific, for $9bn — a deal that substitutes an obligation to buy data centre space with highly valued shares.
Some companies, including CoreWeave and Lambda Labs, are using GPU chips as collateral to obtain private debt financing. Nvidia invests in start-ups that then buy its processors. Meta is softly acquiring technology by paying hundreds of millions of dollars in guaranteed contracts to superstar engineers.
The underlying reason for this spate of unusual deals is that nobody really knows what AI is worth, at least on traditional near-term profit and cash flow metrics. Investors ascribe huge value to vague estimates of “total addressable markets”, and bankers and lawyers then draw up convoluted transactions.
One day, the music may well stop on one of these bizarro deals given the nosebleed valuations and unusual structures. Despite the promise of AI, some pockets in the sector will inevitably face a painful but ultimately salutary market correction. Until then, the circus will go on.
sujeet.indap@ft.com
