Baidu: Highlights Progress of Ernie 4.0 Model, but AI Business Remains in Early Stages

We attended Baidu World 2023 online on Oct. 17, where Baidu 09888 showcased the latest version of its artificial intelligence foundation model Ernie 4.0 and provided updates on the uses for its AI-related portfolio. One of the key claims from Baidu during the conference was that Ernie 4.0 had caught up with OpenAI’s GPT-4 and that it was on par with the Western model. The conference highlighted some of the model’s capabilities rather than giving an update on the long-term strategic direction of Baidu’s AI business as there was a lack of new guidance for the business. We believe that the market also got minimal incremental news about its AI business despite a more refined presentation as shares declined 1% during trading on Oct. 17. We believe that investors remain concerned over long-term issues such as how Baidu will deal with chip sanctions and other key risks that could impede further development of the firm’s AI business, which were never addressed during CEO Robin Li’s presentation. However, we previously forecast that if its AI business could generate 50% more revenue growth for online marketing and cloud revenue, this could potentially represent a USD 7-USD 10 valuation increase, according to our earlier AI scenario analysis.

The company showed Ernie 4.0′s ability to create videos, plan a trip itinerary, as well as solve complex math puzzles when Li asked the model a question using voice recognition. The biggest potential for Ernie 4.0 is its ability to create video presentations and enterprise data analytics for its cloud AI business. Baidu indicated that Ernie 4.0 has three times the inference ability and two times the memory compared with its predecessor Ernie 3.5. The presentation was an improvement from the debut of Ernie in March, which was mostly prerecorded. We believe that its content-creation capabilities appear to be more refined and less premeditated than in its previous presentation.