Baidu’s AI transition faces headwinds amid China’s economic slowdown, shares drop

Baidu, China’s leading search engine and a pioneer in artificial intelligence (AI), reported a 0.4% decline in revenue for Q2 2024, totaling 33.93 billion yuan ($4.67 billion). 

While this figure slightly surpassed analysts’ expectations of 33.55 billion yuan, it underscores the challenges Baidu faces as it navigates an increasingly competitive AI landscape and a slowing Chinese economy. 

Despite these hurdles, Baidu remains committed to strengthening its position as a major AI player.

Baidu’s online marketing revenue drops by 2%

Over the past few years, Baidu has been steadily transitioning from its roots as a search engine giant to an AI-driven enterprise. 

Central to this strategy is its Ernie platform, a large language model that now processes over 600 million requests daily, making it the most widely used AI system in China.

However, the rise of competition in the AI sector, particularly in generative AI, has led to aggressive pricing strategies among rivals. 

This competition is expected to intensify in the coming years, putting pressure on Baidu to maintain its market dominance.

Baidu’s online marketing revenue, which still constitutes the bulk of its earnings, dropped by 2% to 19.2 billion yuan in Q2. 

This decline reflects the broader economic challenges facing China, where businesses are cutting advertising budgets amid ongoing economic uncertainty.

Despite challenges, Baidu bets on AI 

Despite the challenges in its core business, Baidu is betting heavily on AI and autonomous vehicles as key growth drivers. 

The launch of a paid version of its Ernie-powered chatbot and API services for developers are part of this broader strategy. 

In Q2, generative AI contributed 9% to Baidu’s cloud computing revenue, up from 6.9% in the previous quarter, highlighting the growing importance of AI in its future plans.

In addition to AI, Baidu is making significant strides in the autonomous vehicle sector. 

Its Apollo Go robotaxi service, which operates in multiple Chinese cities, now boasts a fleet of 500 vehicles in Wuhan—the largest of its kind. 

While this segment has yet to make a substantial contribution to Baidu’s overall revenue, the company projects that its Wuhan operations will break even by the end of the year.

Despite these advancements, Baidu’s adjusted net income fell by 8% to 7.4 billion yuan, though this still surpassed the 6.45 billion yuan anticipated by analysts. 

The drop in US-listed shares of Baidu by 3.3% in early trading reflects investor concerns about the company’s ability to maintain its leadership in a rapidly evolving and competitive AI market.

As Baidu continues to invest in AI and autonomous technology, these initiatives could prove critical in navigating the challenges posed by both the economic slowdown and fierce competition. 

The company’s ongoing innovation, particularly in AI and autonomous vehicles, positions it for potential long-term growth, even as it contends with short-term revenue pressures.