Baidu forecasts AI revenue growth and limited short-term impact from US chip curbs

Baidu has a stockpile of advanced artificial intelligence (AI) chips to soften the short-term impact of US export curbs, the Chinese tech giant said as it forecast increased AI revenues in its third-quarter results.

In an earnings call on Tuesday, Baidu CEO Robin Li Yanhong said the company expects to have enough AI chips to continue developing its Ernie large language model (LLM) for the next two years as it races to keep up with OpenAI’s ChatGPT.

“The restrictions on chip exports to China actually have limited impact on Baidu in the near term,” he said, adding “we believe our chip reserves as well as other alternatives will be sufficient to support a lot of AI native apps for our end users”.

Li did not provide details on potential alternative chip sources but said that while these options were not as advanced as those in the US, Baidu’s “unique AI architecture and strengths in algorithms” would continue to help mitigate challenges and improve efficiency.

However, Li said US sanctions on exports of advanced AI chips to China by key companies like Nvidia would “inevitably impact the pace of AI development in China,” and could lead to a consolidation of Chinese AI companies around leading LLMs.

The Baidu CEO recently criticised efforts by unnamed enterprises in China to hoard advanced semiconductors and build intelligent computing centres as part of plans to build their own AI foundation models from scratch.

Heads of local rivals such as Alibaba Group Holding and Tencent Holdings have recently said the US AI chip curbs would affect their cloud computing businesses, with Alibaba withdrawing a plan to independently list its cloud unit, citing uncertainties surrounding the restrictions. Alibaba owns the South China Morning Post.

Baidu, Alibaba and Tencent are known to be customers of Nvidia, but ahead of the latest tightening of restrictions on Nvidia’s advanced chip sales to China, Baidu reportedly placed an order for domestically-made AI chips from Chinese telecommunications giant Huawei Technologies as a potential Nvidia alternative.

Baidu did not respond to a request for comment on the report.

Baidu’s Ernie Bot ecosystem has become a significant focus of the company, which has traditionally derived most of its revenue from internet advertising. The company unveiled its chatbot in March this year, becoming the first major Chinese tech firm to release its competitor to ChatGPT. It was soon followed by Alibaba and Tencent.

Ernie Bot has amassed 70 million users three months into its public roll-out, and Li said it is now handling tens of millions of queries daily, while thousands of enterprises have adopted Baidu’s AI services.

Baidu CEO Robin Li Yanhong. Photo: Handout

Li said the company’s current revenue from generative AI was still small, with AI cloud revenue declining 2 per cent year on year in the last quarter. Still, he forecast that the product would help generate hundreds of millions of yuan in additional ad revenue for Baidu in the fourth quarter.

“Our AI-centric business and product strategy should set the stage for sustained multi-year revenue and profit expansion within our Ernie and Ernie Bot ecosystem,” Li was quoted as saying in the earnings report.

On the earnings call, Li also said Baidu would realign resources to further invest in AI growth opportunities and shift away from “lower-priority efforts,” echoing statements from chief financial officer Rong Luo, who said on the call that the company was “prioritising investments in AI, especially in generative AI and foundation models”.

Increased revenue from generative AI products could help Baidu ramp up growth despite challenging economic conditions in China. The company reported revenue for the September quarter of 34.45 billion yuan (US$4.7 billion), up 6 per cent from last year and slightly above estimates by analysts polled by Bloomberg.