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According to a report by Bianniu.com on August 23, Bloomberg Industry Research reported that Baidu's revenue decline reflects the difficulties in its transition from search advertising to artificial intelligence.

Baidu's revenue fell 0.4% to 33.9 billion yuan ($4.7 billion) in the three months to June, compared with expectations for 34.1 billion yuan. Net profit was 5.5 billion yuan, compared with expectations for 5.06 billion yuan.

Baidu’s poor results highlight the challenges it faces in turning its lead in artificial intelligence generation into significant revenue.

Baidu’s Ernie large-scale language model is growing sales through advertising and cloud services even as the company engages in an AI price war with the likes of Alibaba Group and Tencent Holdings Ltd.

"Baidu's business appears to be at a crossroads," TH Data Capital analyst Hou Tian wrote in a report before the earnings release. Its artificial intelligence initiatives have not yet achieved the expected results and cannot become a growth driver for Baidu.

Earnings from Chinese tech companies have been mixed so far — Tencent, Alibaba and JD.com all beat earnings estimates, but their results pointed to continued weakness in areas ranging from payments to e-commerce.

Baidu’s billionaire founder Robin Li has high hopes for creating China’s ChatGPT. But he faces tough competition from other big tech companies as well as emerging startups.

IDG estimates that Baidu captured about one-fifth of China’s $250 million generative AI market last year.

But that leadership is eroding fast. For example, TikTok owner Bytedance Ltd. this year launched the Doubao chatbot, which is now more popular than Ernie.

What Bloomberg Intelligence Says

Baidu's outlook remains highly challenged, with its AI business set to continue to lose money over the next three years, while the gap between Tencent and Alibaba is narrowing. We expect Baidu's search engine business, the group's main cash-generating engine, to remain under pressure from growing competition in the short video space, while heightened uncertainty in China's corporate sector is another risk. An intensifying AI price war could cause Baidu to lose further market share this year, hampering its ability to monetize its technological expertise and turn around its unprofitable AI business. We expect Baidu's adjusted net income to fall 5-10% this year.

- Analysts Robert Lea and Jasmine Lyu

Baidu’s cloud computing revenue, by far its biggest growth driver, grew 14% to 5.1 billion yuan, Li told analysts on a post-earnings call. Nearly 9% of cloud computing sales came from artificial intelligence products, Li added.

Meanwhile, Ernie-produced content now accounts for 18% of Baidu search results, up from 11% in mid-May. Li Yanhong said the shift means the company will have to cut advertising space in search results in the short term.But it’s a sacrifice the company is willing to make to keep users engaged with its generative AI services.

Overall, despite taking many years and billions of dollars in investment, Baidu’s grand plans in the field of artificial intelligence are gradually paying off.

The company said its self-driving ride-hailing unit, Apollo Go, should achieve unit economic profitability by 2025, and it is currently operating a growing fleet of self-driving taxis in the city of Wuhan.