How artificial intelligence has cut a major Chinese technology company’s earnings in half

One of the largest Chinese internet firms, Baidu Inc., allegedly saw a 48% drop in profit—a number that was higher than expected. This decline, according to a Bloomberg study, highlights the rising costs related to building and training artificial intelligence (AI) systems in order to compete in the quickly expanding AI market.

Baidu announced a net income of 2.6 billion yuan, or $361 million, for the last quarter of 2023. Even though this fell short of expectations, a large amount of the deficit was attributable to equity accounting for preferred shares. Baidu was nevertheless able to grow its revenue by 6% in spite of this blow. According to reports, the increase occurred when Baidu’s ChatGPT-like service started to improve ad sales, assisting the business in navigating a difficult economic environment. Nonetheless, Baidu’s New York stock fell 2%.
disappointing figures

These findings, which come after Alibaba Group Holding Ltd.’s dismal results, demonstrate how the private sector, which once powered the second-largest economy in the world, is now dealing with challenges. After routinely achieving double-digit percentage growth, Baidu is now facing challenges related to macroeconomic and market concerns.

In an effort to revitalize its company, Baidu has teamed up with rivals in Silicon Valley, including Microsoft Corp. and Google, to investigate opportunities for generative AI monetization. Over 100 million people have signed up for the company’s ChatGPT-style service, which also offers a premium tier that requires a monthly membership fee. Baidu has an advantage over rivals Tencent Holdings Ltd. and ByteDance Ltd. because to this early start.
Downloads but not much money

However, compared to search advertisements, Baidu’s major source of income, the money made by their AI model, Ernie, is still rather little. According to the newspaper, Ernie’s wealthy creator Robin Li projects that the platform would generate an extra “several billion yuan” in income by 2024 via cloud services and advertising. In the meanwhile, sales at Baidu’s crucial cloud division increased by 11% to 5.7 billion yuan in the quarter.

Research and development expenses increased by 11% in the most recent quarter in spite of these efforts. The majority of these costs go toward server fees that help fund the advancement of generative AI. Robin Li, the founder of Baidu, voiced confidence in the company’s ability to continue its AI efforts given its ample high-end resources.