Image generated by AI
AsianFin -- Baidu Intelligent Cloud's revenue experienced a decline in the third quater of 2024, according to the earnings call.
"Don't be afraid. It's just a technical adjustment," said Robin Li, Baidu's founder, chairman, and CEO Robin Li said. Baidu Cloud's revenue reached 4.9 billion yuan, an 11% year-on-year increase, and its non-GAAP operating profit margin also improved. The proportion of AI-related revenue continued to rise to over 11%.
However, compared to the previous quarter's revenue of 5.1 billion yuan, Baidu Cloud's revenue decreased quarter-on-quarter, which is puzzling given the generally favorable conditions.
Shen Dou, president of Baidu Cloud Business Group, provided an explanation: the AI cloud business consists of two main parts, namely personal cloud and cloud services for enterprises and the public sector. The third quarter, the total revenue growth of AI cloud slightly slowed down, mainly due to short-term business adjustments that temporarily impacted personal cloud revenue.
Setting aside short-term factors, can Baidu Intelligent Cloud continue its high growth?
Proportion of AI Revenue Steadily Increasing
As shown in the image above, Baidu Intelligent Cloud's revenue has fluctuated over the past year. Apart from the short-term impact of the personal cloud business separation, the fourth quarter of each year is also a high-revenue quarter for cloud providers. Overall, Baidu Intelligent Cloud is steadily growing.
Shen stated that since last year, driven by the development of generative artificial intelligence and foundational models, we have observed that China's cloud industry is accelerating its transition to AI computing, with more and more customers choosing Baidu's AI cloud infrastructure and foundational models.
"The revenue related to generative AI reflects its growing appeal. When we first reported it in the fourth quarter of last year, it accounted for about 5% of our total AI cloud revenue, and by this quarter, it has more than doubled to 11%. So we are confident that this upward trend will continue," he said.
Baidu Intelligent Cloud's disclosure of this data may be related to its own strategy. On one hand, it follows Baidu Group's overall AI strategy, highlighting AI-related progress; on the other hand, Baidu Intelligent Cloud has always emphasized "high-quality growth."
Shen also mentioned that in terms of profitability, our AI cloud business is healthier than ever, with the non-GAAP operating profit margin improving year by year. This improvement is driven by the continuous enhancement of profit margins brought by generative AI revenue and our commitment to achieving high-quality revenue growth. Looking ahead, we are confident that Baidu's AI cloud business will maintain strong revenue growth momentum in the long term and continue to achieve healthy operating profits.
Integration of Cloud and Large Models
From an industry perspective, the integration between large models and leading cloud computing providers is becoming increasingly mainstream. In the domestic market, major internet companies like Alibaba, ByteDance, Tencent, and Baidu have adopted the route of self-developing large models, deeply integrating self-developed large models with their own cloud computing services, while some platforms also support more third-party large model API calls.
In the global market, Amazon Web Services has deeply integrated with Anthropic through investment, and Microsoft has done the same with OpenAI. This model makes large models gradually become a game among a few internet giants. The development of large models also prompts cloud computing providers to increase their investment in AI infrastructure. Capital expenditure growth rates for Microsoft, Amazon, Google, and Alibaba have significantly increased.
In providing large model services, cloud providers have a natural advantage. IDC China's Research Director Liu Lihui introduced that by 2026, more than half of enterprises will collaborate with cloud providers in areas such as generative AI infrastructure and related platform tools.
Take Baidu as an example, the daily call volume of the Wenxin large model exceeds 1.5 billion, internally supporting businesses such as the Wenxin large model, Apollo Go, Baidu Library, and Baidu Netdisk. Externally, Baidu Intelligent Cloud's large model customers cover more than 11 industries. Among them, 80% of online education companies use Baidu Intelligent Cloud's AI services.
An IDC report shows that in the first half of 2024, the size of the Chinese MaaS market reached 250 million yuan, and the Chinese AI large model solution market reached 1.38 billion yuan. Baidu Intelligent Cloud ranked first in both markets, with market shares of 32.4% and 17%, respectively.
In fields with high security and compliance requirements, such as finance and healthcare, some companies have chosen private deployment. However, in broader fields, the public cloud + API call model has become the mainstream way for companies to use large models.
Shen also stated that cloud services for enterprises and public sectors, which account for the majority of AI cloud revenue, maintained strong growth momentum this quarter, with growth rates consistently exceeding the overall AI cloud business growth rate. The growth in enterprise cloud revenue is driven by strong demand for model training and inference across multiple industries such as internet, education, and finance. This reflects customers' high recognition of AI infrastructure and large-scale platform capabilities, especially as major customers in industries such as internet, technology, and automotive have increased their spending on our GPU (Graphics Processing Unit) public cloud. Additionally, we have also seen growth in both the number and spending of medium-sized enterprises, especially in industries like marketing software that are continuously developing in today's cloud market.
Goldman Sachs pointed out in its research report that Baidu has demonstrated a firm determination to drive business transformation with artificial intelligence, emphasizing the user experience of ToC businesses such as search. Currently, driven by AI, Baidu Intelligent Cloud is accelerating growth, with an expected growth rate expansion to 15% in the fourth quarter, and the proportion of AI revenue continues to rise, maintaining strong growth momentum into 2025. (Author | Zhang Shuai, Editor | Gai Hongda)