Baidu: Highlights Progress of Ernie 4.0 Model, but AI Business Remains in Early Stages

We attended Baidu World 2023 online on Oct. 17, where Baidu showcased the latest version of its artificial intelligence foundation model Ernie 4.0 and provided updates on the uses for its AI-related portfolio. One of the key claims from Baidu during the conference was that Ernie 4.0 had caught up with OpenAI’s GPT-4 and that it was on par with the Western model. The conference highlighted some of the model’s capabilities rather than giving an update on the long-term strategic direction of Baidu's AI business as there was a lack of new guidance for the business. We believe that the market also got minimal incremental news about its AI business despite a more refined presentation as shares declined 1% during trading on Oct. 17. We believe that investors remain concerned over long-term issues such as how Baidu will deal with chip sanctions and other key risks that could impede further development of the firm's AI business, which were never addressed during CEO Robin Li's presentation. However, we previously forecast that if its AI business could generate 50% more revenue growth for online marketing and cloud revenue, this could potentially represent a USD 7-USD 10 valuation increase, according to our earlier AI scenario analysis.