Chinese tech giant Baidu Inc witnessed a significant 48% drop in profits, surpassing initial estimates and highlighting the substantial investment required for AI development. This downturn, as reported by Bloomberg, underscores the escalating costs associated with training and advancing artificial intelligence systems to stay competitive in the rapidly evolving AI landscape.
In the final quarter of 2023, Baidu reported a net income of 2.6 billion yuan (approximately $361 million), falling short of projections primarily due to equity accounting for preferred shares. However, despite this setback, Baidu managed to achieve a 6% increase in revenue, attributed partly to the success of its ChatGPT-style service in boosting advertising sales amid challenging economic conditions. Nonetheless, Baidu’s shares experienced a 2% decline in New York.
These disappointing figures follow a trend of lackluster performance from other major Chinese tech players like Alibaba Group Holding Ltd., signaling broader challenges facing the private sector in China, which once drove considerable economic growth.
To revitalize its business, Baidu has formed partnerships with Silicon Valley giants such as Microsoft Corp. and Google to explore opportunities in monetizing generative AI. While Baidu’s AI model, Ernie, shows promise with expectations of generating “several billion yuan” in additional revenue through advertising and cloud services in 2024, its revenue remains modest compared to its primary income source—search ads. Despite a notable 11% growth in revenue from its cloud division, research and development costs surged by the same percentage, primarily due to investments in server infrastructure to support generative AI development.
Founder Robin Li remains optimistic about Baidu’s AI initiatives, expressing confidence in the company’s ability to sustain its efforts with ample resources at its disposal.