Wall Street has been quite critical of US tech companies spending spree on AI infrastructure. The biggest question, which even many CEOs have failed to answer, is how this investment will translate to future revenues. Apart from META and AI infrastructure companies, there is hardly any big company that has seen incremental gains on their massive AI investments. That lack of clarity might be about to change.
At the dawn of the new year, analysts have received their answer, albeit from an unlikely source. Baidu’s founder just laid out how the company will monetize AI and ensure its investments during the last two years were worth it. Baidu is a Chinese search engine giant that offers search, marketing, advertising, and streaming services. It is often referred to as ‘China’s Google’ and focuses on the integration of AI across the various sectors it operates in. The purpose of this focus is to improve user experience across its various services through the latest available technologies.
The company’s founder, Robin Li, believes the AI applications industry will see an exponential boom in 2025. He expressed these sentiments in a letter sent to the staff on the occasion of the new year. He emphasized the need for AI applications and lamented how the race to create large language models (LLMs) has saturated the market in China. There are currently over 200 LLMs in China, which has resulted in increased competition and a price war. Alibaba offered a massive discount on its LLM models usage on the new year eve. The 85% discount goes to show how competitive the LLM industry has become in China. Robin Li wants everyone to move on from training models to monetizing AI.
Baidu runs a popular AI chatbot called the ‘Ernie bot’ in China. By mid-2024, the platform had already surpassed 300 million total users. While the monetization of AI is a great mission for the company’s founder, it shouldn’t mask the fact that Baidu is struggling to run its core search operations. Investors would hope that the focus on AI monetization bears fruit and doesn’t just remain hype. We are bearish on the stock due to its continuous struggles and lack of stock price appreciation. The founder’s words may bring change in 2025 but investors will have to keep a close eye on the developments to benefit from that.
Baidu is not on our latest list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 54 hedge fund portfolios held BIDU at the end of the third quarter which was 42 in the previous quarter. While we acknowledge the potential of BIDU as a leading investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as BIDU but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: The original version of the article mistakenly stated that Baidu’s Ernie bot had 12.5 million Monthly Active Users (MAUs). This article was originally published at Insider Monkey.