Your TikTok feed could soon be powered by Perplexity AI

Perplexity AI has submitted a revised proposal to merge with TikTok’s U.S. operations, offering the U.S. government up to 50% ownership in a new entity that would combine the AI startup with TikTok’s American business. The proposal, which follows feedback from the Trump administration, aims to address national security concerns while allowing ByteDance to retain partial ownership and avoid a complete divestiture.

Revised merger proposal details

Under the revised plan, ByteDance would contribute TikTok’s U.S. operations to a new holding company, dubbed “NewCo,” without including its proprietary recommendation algorithm. In exchange, ByteDance’s existing investors would receive equity in the new entity. Perplexity AI would also merge into NewCo, with its investors receiving a distribution of equity. The U.S. government would acquire up to 50% of NewCo following an initial public offering (IPO) valuing the company at a minimum of $300 billion, according to documents reviewed by CNBC and Reuters.

The government’s stake would be non-voting, meaning it would not have board representation or influence over operational decisions. This structure mirrors suggestions made by former Treasury Secretary Steven Mnuchin, who recently emphasized the need to disconnect TikTok’s technology from Chinese control. “The technology needs to be disconnected from China,” Mnuchin said on Fox News. “There’s absolutely no way China would ever let us have something like that in China.”

Funding and governance

The merger would be funded by third-party capital providers, who would contribute to a one-time dividend payment for ByteDance investors in exchange for simplified governance. The proposal also stipulates that NewCo would have “full U.S. board control,” ensuring operational independence from ByteDance. A source familiar with the negotiations told CNBC that the deal’s final valuation would depend on which ByteDance shareholders choose to retain their stakes versus cashing out, with estimates placing the price “well north of $50 billion.”

Political and regulatory context

The proposal comes amid ongoing tensions between the U.S. and China over TikTok’s ownership. A bipartisan law passed last year mandated that ByteDance divest TikTok’s U.S. operations by January 19 or face a ban. While the Supreme Court upheld the law, President Trump issued an executive order delaying enforcement for 75 days to allow for negotiations. TikTok briefly shut down in the U.S. last week before resuming operations after Trump signaled his willingness to extend the deadline.

Trump has expressed support for a deal that benefits the U.S., stating on Air Force One, “I’d only do it if the United States benefits.” He also noted that multiple “substantial people” have approached him about TikTok, though he denied discussing the matter with Oracle CEO Larry Ellison, despite reports of Oracle’s interest in acquiring TikTok’s global operations.

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Competing bids and market dynamics

Perplexity AI, which saw its valuation soar from $500 million to $9 billion in 2024 amid the generative AI boom, is one of several parties vying for TikTok. Other potential buyers include Microsoft, Oracle, and Elon Musk. Perplexity’s bid stands out due to its merger structure, which ByteDance may find more palatable than an outright sale. A source told Reuters that Perplexity believes its proposal has a higher chance of success because it allows ByteDance to retain some ownership and avoids the political backlash of a full divestiture.

Next steps and timeline

If accepted, the deal would allow ByteDance to maintain a financial stake in TikTok’s U.S. operations while addressing U.S. national security concerns. However, the exclusion of TikTok’s core algorithm—a key driver of its user engagement—raises questions about the new entity’s competitiveness. ByteDance has not publicly responded to the proposal, and TikTok CEO Shou Zi Chew has only thanked President Trump for his commitment to finding a solution that keeps TikTok available in the U.S.

Perplexity, which competes with OpenAI and Google in AI-powered search, would gain access to TikTok’s vast user base and video content capabilities. Meanwhile, TikTok’s U.S. operations would benefit from Perplexity’s AI expertise, potentially enhancing its content recommendation systems without relying on ByteDance’s algorithm. Bernstein analysts noted that the deal raises “existential questions” about the viability of proprietary AI models versus open-source alternatives, as Perplexity’s approach contrasts with OpenAI’s closed ecosystem.

President Trump has indicated that a decision on TikTok’s future could come within 30 days.

Featured image credit: Solen Feyissa/Unsplash