Baidu's Profit Soars as AI Buoyancy Offset Advertising Weakness

Baidu, China's leading search engine, reported a significant jump in profit for the fourth quarter despite a slight revenue dip, a positive development attributed to its growing AI business. As reported by The Wall Street Journal, the Beijing-based internet company’s AI cloud business is thriving, offsetting the slowdown in online advertising revenue.

The company announced Tuesday that its fourth-quarter revenue fell 2.4% to 34.12 billion yuan ($4.70 billion), slightly better than analysts' predictions of a nearly 5% drop. However, net profit surged to 5.19 billion yuan, significantly exceeding analysts' expectations of 3.75 billion yuan.

"Our AI Cloud business demonstrated robust momentum with fourth-quarter revenue growth accelerating to 26% year over year, offsetting the softness in online marketing business," said Junjie He, Baidu’s interim chief financial officer. He expressed confidence that the company's strategic AI investments would drive long-term success despite near-term challenges.

Last week, Baidu announced that it would make its AI chatbot free for mobile and desktop users starting in April, a move aimed at increasing its presence in China's rapidly expanding AI market. Despite this, Baidu's Ernie Bot, once a leading AI chatbot in China, has experienced a slight decline in popularity, particularly after the emergence of a new competitor, DeepSeek, in late January.

Despite the slight dip in Ernie Bot's popularity, Baidu maintains that the chatbot is showing "strong momentum" and handled 1.65 billion API calls daily in December. However, analysts remain focused on the development of Baidu's AI search, which could potentially revitalize the company's advertising revenue.

Beyond AI, Baidu has diversified its investments, focusing on cloud computing and self-driving technology. In November, the company's Apollo Go robotaxi service received permits to conduct autonomous-driving tests on Hong Kong's public roads.

These developments come at a time when Beijing is signaling increased support for the tech sector. President Xi Jinping's recent meeting with leading technology entrepreneurs and CEOs indicates that the government is seeking the private sector's contributions to economic growth and self-sufficiency.

Despite these positive signs, Baidu's American depositary receipts slipped 2.2% in premarket trading after the earnings announcement.