Baidu Inc’s revenue waned by 0.4 percent to 33.9 billion yuan against the budgeted 34.1 billion yuan for Q2, as the Chinese giant failed to capitalize on AI. The company has attributed this to the shift from search ads to AI during China’s economic crunch.

The company reported a net income of 5.5 billion yuan for the period against the projected 5.06 billion. The company’s shares modestly grew by 1% in premarket trading. The drop in performance highlights the trials that Baidu is experiencing in translating its lead in generative AI into notable income.

Baidu might take time to wean itself off advertising

“Ernie,” Baidu’s large language model, has immensely spurred the company’s sales attributable to ad and cloud services despite AI price wars with entities that include Alibaba Group Holding Limited and Tencent Holdings Ltd.

It is feared that the Beijing-based entity will take time before it transforms from depending on advertising. The advertising industry itself has been on a downtrend since China’s Covid experience.

“Baidu’s business seems to be at crossroads. Its AI initiatives have not delivered the expected results to become BIDU’s growth driver, and China’s economic downturn has further hindered its search advertising growth.”

TH Data Capital analyst Tian Hou.

This comes as China is facing a myriad of protracted economic issues encompassing property crisis, and youth employment, which have compromised business and customer spending.

Baidu faces stiff competition from its local peers

The world’s second-largest economy’s tech companies have been operating on the edge, albeit recording earnings above estimates. Baidu is a leading player in China’s AI industry. Its AI model – Ernie bot is the local alternative to OpenAI’s ChatGPT, which is not officially available in the Asian country.

The company faces strong competition from peers like Tencent and TikTok’s parent company, Byte Dance. Now, Tencent, Alibaba, and J.D com Inc. results have shown loopholes in their operations, which range from payment to e-commerce.

However, Robin Li, the founder of Baidu is optimistic that China will invent an offering comparable to ChatGPT. This remains a huge task given the competing interests by Chinese Tech firms and emerging startups.

According to IDG, Baidu remains a force to reckon with, as it earned about a fifth of China’s $250 million generative AI from the market in 2023.

However, that position is fast-waning, given the growing influence of the Doubao chatbot in the current year, which is likely to overtake Ernie’s reputation.

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