Baidu's AI Chatbot Ernie 4 Is Off To A Good Start, Says Bullish Analyst

Shares of Baidu Inc BIDU were climbing in early trading on Wednesday after the company reported strong third-quarter results.

While the margins in Baidu’s cloud business are improving, the company started the monetization process of its Generative-AI chatbot, Ernie, according to Mizuho Securities.

The Baidu Analyst: James Lee reiterated a Buy rating for Baidu while keeping the price target unchanged at $140.

The Baidu Thesis: Despite facing a seasonally slow quarter, macro headwinds, and budget delays impacting Cloud revenue growth, the company’s operating income was meaningfully better than the consensus estimates, Lee said in the note.

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Baidu’s operating income was driven by improving Cloud profitability and disciplined cost management, the analyst stated. The company also started a subscription plan for Ernie 4, its latest LLM version that is comparable to GPT4, and “within a short period of time, it has generated single-digit cloud revenues,” he added.

“With fundamentals largely on track and Gen-AI off to a good start, we have increased confidence in our FY25 Baidu Core EBITDA, largely unchanged at 36bn RMB,” Lee further wrote.

BIDU Price Action: Shares of Baidu had risen by 6.56% to $120.86 at the time of publication Wednesday.

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