⚔️ Google's AI competition

What’s going on here?

Investors made clear they’re not at all confused about Perplexity’s value as a Google challenger, jumping in on a funding round that tripled the AI firm’s valuation.

What does this mean?

Perplexity’s conversational search engine has over 15 million monthly active users, making it one of the world’s fastest-growing AI applications. The firm’s subscription model is paying off too, with annualized revenue that topped $35 million in August – up from just $5 million in January. And clearly, Perplexity is catching the right attention: the startup just raised $500 million from investors – including Nvidia – in a deal that valued it at $9 billion. That’s triple the valuation it secured in June.

Why should I care?

The bigger picture: Things go boom.

Perplexity – whose AI search engine pulls information from the web in real time to answer queries – is just the latest example of AI startups attracting huge investments at eye-watering valuations. Just this week, Databricks sealed one of the biggest deals in venture capital history. And not long before that, ChatGPT-creator OpenAI landed $6.6 billion in funding at a $157 billion price tag – the highest in Silicon Valley history. Not everyone’s sold on AI’s big promises though: some investors are warning the sky-high valuations for loss-making startups have all the hallmarks of a bubble.

Zooming out: A little less lonely at the top.

Google’s vice grip over the $300 billion search advertising industry is starting to slip, and it’s not just because of Perplexity. OpenAI recently opened up its AI-powered search tool, SearchGPT, to all its users. And Google can’t fall back on its usual playbook, either: a US federal judge ruled in August that it was illegally maintaining a search-and-ads monopoly. It’s safe to say that any potential fixes won’t make it easier for the firm to stay on top.

What’s going on here?

The US dollar ascended to a two-year high, with the Federal Reserve (Fed) saying the country’s interest rates won’t fall too close to Earth in the next year.

What does this mean?

The central bank isn’t saying it won’t cut interest rates at all: it’s just saying that patience will be its virtue. The Fed’s now planning to reduce borrowing costs only twice in 2025 – down from its previously predicted four times. Higher-for-longer rates will make bonds and money markets attractive, giving them juicier yields. Riskier assets like stocks will likely suffer, as higher rates tend to weigh on economic growth. As for the almighty dollar, plush interest rates – together with its safe-haven status – help keep the currency a global favorite.

Why should I care?

The bigger picture: Mean, green, market machine.

The US dollar is essentially the world’s currency: it drives 80% of global trade and dominates central bank reserves. Key commodities – like gold and oil – are priced in dollars, and most international loans for governments and companies are too. So it’s much more than a single country’s legal tender: it’s the bedrock of global stability.

For markets: A not-so-sweet milkshake.

The "Dollar Milkshake Theory" is based on the idea that there just aren’t enough US dollars to meet global demand. It says that the higher the dollar’s value climbs, the greater the problems it causes. A stronger greenback makes it pricier for foreign countries and companies to finance their dollar-denominated debts – and to buy dollar-priced goods like oil. That ramps up the risk of defaults. And defaults effectively shrink the supply of dollars in the market, strengthening the currency even more and triggering a doom loop that amplifies the risk of a global crisis.