Since the US software company OpenAI released ChatGPT to the world in November 2022, the chatbot has been considered the measure of all things in the field of artificial intelligence (AI). But the competition is catching up and other AI models have been making headlines for a few weeks now: Deepseek's, R1-Omni and Ernie are the names and they all come from the Far East. The latter AI was developed by Baidu. A few days ago, the Chinese tech company launched two new AI models under this name: the basic model Ernie 4.5 and the AI Ernie X1, which focuses on logical thinking. The special feature: According to Baidu, the model delivers the same performance as the DeepSeek chatbot - and at half the price.
Ernie is not fundamentally new; Baidu was one of the first companies in China to launch such an AI in early 2023 with its ChatGPT-style chatbot. The strong competition from DeepSeek has now prompted Baidu to launch its latest developments as open source models. This means that the source code of the generative AI model is publicly accessible. The open source conversion will be completed in June and Baidu will be offering its premium chatbot services free of charge from April. "We have learned from DeepSeek that open source can significantly promote acceptance," says Baidu CEO Robin Li, explaining the move.
According to Baidu, the X1 has "stronger capabilities for understanding, planning, reflecting and developing" and is also the first deep-reasoning model to use tools autonomously. According to the company, the latest basic model Ernie 4.5 has "excellent multimodal understanding capabilities". Multimodal AI systems can process and integrate different types of information, including text, video, images and audio, and convert content between these formats. Ernie also has more advanced language capabilities and its comprehension, generation, logic and memory skills have been greatly improved.
Artificial intelligence is now an important area of business for the Beijing-based internet company, which became famous in China thanks to its search engine of the same name. Revenue in the cloud AI division increased by 26% to CNY 7.1 billion in the fourth quarter of 2024. For example, the Ernie platform processed 1.65 billion user queries and interactions per day in December, compared to "only" 600 million in August. On a consolidated basis, Baidu recorded a slight decline in revenue of around 2%, as many companies are cutting their advertising spending due to the weak Chinese economy. Nevertheless, the Google rival was able to exceed analysts' estimates of CNY 33.32 billion with revenues of CNY 34.12 billion.
With a market share of more than 70%, Baidu not only operates the largest search engine in China, but also has a robotaxi division called Apollo. According to media reports, Tesla now also wants to draw on Baidu's expertise for its driver assistance system in China. While this has not yet been confirmed by the companies, the expansion in the livestreaming sector is already official. Baidu recently succeeded in acquiring the Chinese live streaming division of the provider Joyy, at the second attempt. This strengthens the tech giant's position in the competition with platforms such as the Chinese TikTok variant Douyin. On the positive side, the deal with Joyy was ultimately much cheaper than originally expected, allowing Baidu to invest the liquidity saved in the further development of its AI.
Baidu shares reacted positively to the latest developments and have risen by almost a fifth since New Year's Eve. On a one-year horizon, however, the tech share is still stuck in a flat line. This is despite the fact that Baidu does not appear overly expensive from a valuation perspective. Even if the market does not expect earnings to rise in 2025, earnings per share are expected to increase by almost a tenth next year. This contrasts with a 2026 P/E ratio of 8.2. The analyst consensus still sees some upside potential and currently rates the stock as a buy with a 12-month price target of USD 108.09. This corresponds to a potential upside of 6.0%.
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