Broker: OCBC Investment Research
Date: 24 September 2024
AI Adoption and Generative AI Progress
Baidu has been increasing its AI adoption, though its monetization is still in the early stages. Generative AI (GenAI) has seen substantial growth in Baidu’s operations, with AI-generated search queries reaching 18% in August 2024, up from 11% in May. The company’s management has emphasized that while adoption is growing, the near-term focus remains on enhancing user experience and ramping up usage rather than immediate monetization. Baidu expects larger impacts from this transition to be felt in the third quarter of 2024, with ad revenue expected to drop more than the 2% year-on-year decline experienced in the second quarter.
Cloud Revenue Growth and AI Integration
Baidu continues to experience double-digit growth in its cloud segment, driven by AI applications and Platform-as-a-Service (PaaS) offerings. However, as of the second half of 2024, GenAI accounted for only 9% of Baidu’s AI cloud revenue mix. This contribution is expected to grow over time, largely fueled by model training for industry-specific use cases and API integration. Baidu is leveraging its cloud platform to meet the increasing demand for AI products and services across various industries.
Autonomous Driving Focus: Apollo Go
Baidu has made significant strides in autonomous driving (AD) technology with its Robotaxi operations under the Apollo Go brand. In June 2024, Baidu commenced full operations in Wuhan, providing services across the entire city (except for the airport expressway) with a fleet of 400 cars. The fleet is supported by RT6, the company’s sixth-generation autonomous driving vehicle, which is currently being piloted at scale. RT6 has a production cost of under USD 30,000, less than half the cost of its predecessor, RT5, marking a significant cost reduction that will aid in the broader commercialization of Robotaxi services.
Positive User Feedback and Commercialization Plans
Apollo Go has received positive feedback from users, with high satisfaction ratings for both pricing and user experience. In the near term, Baidu’s management is focusing on achieving breakeven in unit economics, which is expected to occur at a regional level within a few quarters. Upon reaching this milestone, the company plans to expand its operations and engage in partnerships, subject to local government approvals. The successful rollout of Apollo Go reflects Baidu’s leadership in autonomous driving technology and its readiness to scale AD services across major urban centers in China.
Supportive Policies and Long-Term Vision
China’s policies and infrastructure provide a strong foundation for Baidu’s autonomous driving ambitions. The country’s robust 5G networks, data centers, and connected highways create an ideal environment for the development and deployment of autonomous vehicles. With ongoing regulatory optimizations and policy support, Baidu is well-positioned to accelerate the commercialization of higher levels of autonomous driving, contributing to the future of smart transportation in China.
Conclusion
Baidu’s investments in AI and autonomous driving position it as a leader in China’s technology landscape. The company’s growing presence in cloud services, combined with the rapid expansion of its Apollo Go Robotaxi services, reflects Baidu’s strategic focus on innovation and long-term growth. As the adoption of AI and autonomous driving technologies continues to grow, Baidu is poised to play a central role in shaping the future of smart mobility and AI integration in China.
