Beijing, China – Baidu Inc., a Chinese AI leader, experienced a significant drop in profit of 48%, exceeding expectations and highlighting the challenges of investing in AI development to stay competitive in the field. The company reported a net income of 2.6 billion yuan ($361 million) for the December quarter, falling short of projections due in part to losses from equity accounting for preferred shares. Despite this setback, Baidu saw a 6% increase in revenue, boosted by its ChatGPT-style service that helped drive advertising sales. However, the company’s shares dropped 2% in New York in response to the news.
The disappointing results from Baidu follow similar trends seen in Alibaba Group Holding Ltd., indicating a broader struggle within the private sector in one of the world’s leading economies. Baidu, once known for its double-digit growth rates, now faces challenges posed by economic uncertainties and market conditions. To revive its business, the company has been exploring ways to monetize generative AI in line with other tech giants like Microsoft Corp. and Google.
Baidu has already attracted over 100 million users to its ChatGPT-style service, offering a premium tier with a monthly subscription to bolster its revenue streams. However, while the AI model Ernie is expected to contribute significantly to additional revenue by 2024, Baidu’s main source of income still stems from search ads. The company’s cloud arm saw an 11% growth in revenue to 5.7 billion yuan in the quarter, signaling potential for expansion in cloud services.
Despite these positive indicators, Baidu faces rising costs in research and development, particularly in supporting generative AI development. The company’s founder, Robin Li, expressed confidence in the availability of high-end training chips to support Ernie’s advancements in the coming years. In response to the competitive landscape, Baidu is encouraging local developers to create AI-native applications using Ernie as a foundation, offering funding to support these projects.
While the potential for Ernie to establish Baidu as a core player in the AI ecosystem is promising, rivals like Tencent and Alibaba pose significant competition given their larger resources and user bases. As Baidu continues to navigate the challenges of adapting to the mobile era and addressing the high costs of AI development, investor concerns persist over the company’s performance in a weak economy. The drop in Baidu’s shares by approximately 30% since July underscores the ongoing challenges facing the company in the increasingly competitive AI landscape.