Perplexity AI, a rising competitor in the AI search engine space, has proposed a merger with TikTok‘s U.S. operations, according to a source familiar with the confidential discussions. The deal would create a new entity combining Perplexity, TikTok U.S., and new capital partners while allowing most ByteDance investors to retain their equity stakes, a source told CNBC.

Proposed Structure and Valuation

Under the proposed structure, Perplexity AI would integrate TikTok’s U.S. operations into its ecosystem, enhancing its video capabilities. ByteDance shareholders could choose to remain invested or exit their positions, with the merger’s total value estimated to exceed $50 billion. The final valuation will depend on shareholder decisions regarding equity retention.

Despite ByteDance’s prior resistance to selling TikTok U.S., Perplexity believes the proposed arrangement is feasible because it stops short of requiring a full divestment, the source explained.

According to recent reports, ByteDance reached a $300 billion valuation after approaching investors with a share buyback program.

Perplexity AI’s Rise

Founded as a challenger to OpenAI and Google, Perplexity AI has gained popularity in the tech sector. Its valuation soared from $500 million in early 2024 to $9 billion by the end of the year, driven by heightened investor interest in generative AI technologies. This growth comes despite controversy over plagiarism allegations, which the company has denied.

TikTok’s Regulatory Challenges

The merger proposal coincides with mounting pressure on TikTok to resolve its U.S. operations amid national security concerns. Without assurances from the Biden administration regarding penalties for service providers like Apple and Google, TikTok warned it would “go dark” in the U.S. on January 19.

President-elect Donald Trump, however, told NBC News on Jan. 18 that he is “most likely” to extend TikTok’s operational deadline by 90 days upon taking office. TikTok CEO Shou Zi Chew acknowledged Trump’s statement in a TikTok video that day, expressing gratitude for the incoming president’s willingness to find a solution that allows the platform to continue serving U.S. users.

While no official timeline has been disclosed, any agreement between ByteDance and Perplexity AI is expected to require months of negotiations and regulatory review.