2023-08-30 20:00:00 ET
Summary
- Baidu leads in machine learning and AI patents in China, with 13,993 active patent families in 2022.
- Chinese government support, including investments of $32.5 billion in AI initiatives, has contributed to the dominance of Chinese companies in AI development.
- Baidu's AI advancements are focused on online marketing services, autonomous vehicles, and cloud computing, positioning the company as a frontrunner in China's AI landscape.
In our prior analysis of Baidu, Inc. ( BIDU ), we identified Baidu's dominant 70% share in search engines in China, but we believed intense competition from Alibaba ( BABA ) and Tencent ( TCEHY ) threatened its advertising market positioning as its market share had lagged behind these companies. Even within the burgeoning video streaming domain, we saw Baidu's streaming service company iQIYI ( IQ ) contend with fierce rivalry from Tencent Video and Alibaba's Youku. Our assessment suggests that Baidu's expansion strategy extends to AI in cloud computing, autonomous vehicles, and smart speakers. In the cloud market, we believe Baidu seeks to distinguish itself through tailored AI cloud solutions and strategic partnerships for commercial cloud integration.
This analysis centers on assessing Baidu's standing as the foremost AI leader in China. Initially, we scrutinized potential advantages Chinese firms gain in AI development through the identification of government policies favoring specific companies. Furthermore, we illuminate Baidu's AI progress, categorizing advancements across its business sectors to pinpoint segments poised to benefit from AI integration. Lastly, we conducted a comparative evaluation of Baidu's AI strides compared to its Chinese competitors to ascertain its potential as the frontrunner in China's AI landscape.
Favorable Policies Support Top Chinese Firms' AI Developments
Based on the chart above, Chinese companies, particularly Baidu, Tencent, Huawei, and Alibaba Group, dominate the field of machine learning and AI patents with Baidu holding 13,993 active patent families in 2022. This surpasses the patent counts of major global players such as IBM ( IBM ), Samsung ( SSNLF ) and Microsoft ( MSFT ). Overall, the data highlights the remarkable contribution of Chinese companies and Baidu in particular, as major players in the field of machine learning and AI patent ownership. Furthermore, we continued to examine the factors for the strong AI development of Chinese companies below.
Significant Investment and Funding
In 2017, the Chinese government unveiled the New Generation AI Development Plan for 2030, with the ambitious goal of positioning itself as a global leader in AI. The plan's primary objective is to establish a robust AI market worth CNY1 tln ($141 bln) by the year 2030. In line with this vision, according to Tortoise Media , the government has made a substantial investment of $32.5 bln into AI which is the highest in the world and ahead of the US ($12.2 bln) while the number of AI companies in China has reached 1,913 though the US leads with 17,670 companies.
Government Initiatives
To support AI development, China has implemented several initiatives to foster the growth of the AI landscape, including...
Made in China 2025, the Action Outline for Promoting the Development of Big Data (2015), the Next Generation Artificial Intelligence Development Plan (2017).
The government has also selected specific companies as national champions in various AI domains, like medical imaging, autonomous driving, smart cities, facial recognition, and voice intelligence. For example...
In keeping with its past practice of picking national champions, the Chinese government chose Tencent to lead A.I. innovation in computer vision for medical imaging; Baidu for autonomous driving; Alibaba for smart cities; Sense Time for facial recognition; and iFlytek for voice intelligence. - Fortune
According to AI & Society...
... these companies receive preferential contract bidding, easier access to finance, and sometimes market share protection.
Additionally , local governments in cities such as Shenzhen and Shanghai have implemented their own regulations aimed at fostering AI development. These regulations offer guidelines, financial support, and incentives to encourage AI research, development, and applications within their respective regions. Based on the Tortoise Media report, China ranked second place behind the US in terms of Government Strategy which...
... gauges the depth of commitment from national governments to artificial intelligence; investigating spending commitments and national strategies.
Knowledge Sharing
The government champions key companies within specific areas of AI as well as fostering collaboration, knowledge sharing and advancement. This boosts company growth and strengthens China's AI landscape and competitiveness. It also prompts major Chinese tech firms to create AI resources for wider user accessibility, aiding smaller businesses and lowering costs. Furthermore, in 2023, China launched the AGI Industry Innovation Partnership Programme which is a collaborative effort by the Beijing government and Chinese tech firms (39 program partners including Baidu and Alibaba), to accelerate the development and applications of AI. According to AI Rankings , "a metric-based ranking that provides insights into Artificial Intelligence research capability worldwide" based on countries, China ranked at 2nd place overall behind the US.
Smart Cities
Furthermore, the government has integrated AI into its operations through programs like smart cities and smart-governance initiatives. By providing opportunities for AI companies to apply their technologies in government projects, the government not only drives the adoption of AI but also helps companies gain valuable insights into the preferences and requirements of the government regarding AI development and application. According to a report by Deloitte cited by Xinhua...
Over 1,000 smart city pilots are ready for or under construction worldwide, and China is home to about 500 of them, covering big and small cities.
Additionally, based on AI Rankings, China has 3 of the top 10 cities for AI, namely Beijing, Hong Kong, Shanghai and Hangzhou, trailing only behind the US with 5 cities.
Summary
Overall, Chinese companies, led by Baidu, Tencent, Huawei and Alibaba dominate the machine learning and AI patent landscape. Baidu leads with 13,993 active patent families in 2022, surpassing global giants like IBM, Samsung, and Microsoft. We believe this is backed by government support, including the New Generation AI Development Plan for 2030, investments of $32.5 bln in AI initiatives and introduced schemes like Made in China 2025, fostering AI growth in the country. Furthermore, we believe local governments in cities like Shenzhen and Shanghai also encourage AI research and smart-city and smart-governance initiatives further drive AI adoption.
Baidu's AI Developments
We identified Baidu's AI developments and compiled the company's AI developments in the table below.
Baidu Products with AI | Medium | Use Case | Technology | Segment |
Baidu Maps AI | Text, Images | Navigation | ML | Others |
Baidu Translate | Text | Transcription | NLP, ML | Online Marketing Services |
Baidu Apollo Project | Text, Images | Autonomous Vehicles | Robotics and Autonomous Systems | Others |
Baidu Search | Text, Images, Videos | Research, Marketing | NLP, ML | Online Marketing Services |
Baidu Cloud | Text | AI Model Development | ML | Cloud Services |
Baidu Feed | Text | Personalization | ML | Online Marketing Services |
Haokan (VidPress) | Videos | Content creation, Video Editing | Computer Vision, NLP | Online Marketing Services |
Baidu Health | Text | Healthcare Matching | ML | Online Marketing Services |
Baidu Brain | Text | Research | ML | Cloud Services |
Baidu DuerOS | Audio, Images | Smart Home Assistant | NLP | Others |
Source: Company Data, Khaveen Investments
Baidu incorporates AI across its platforms and services, including Baidu Maps for automation of data collection, Baidu Translate for real-time translation and the Apollo Project for self-driving cars. Furthermore, Baidu Search utilizes AI algorithms for improved search results, while Baidu AI Cloud enables developers and enterprises to develop and deploy AI models using machine learning technologies. Moreover, Baidu Feed incorporates AI recommendation algorithms for personalized content and Haokan features its VidPress video editing tool for content creation using computer vision and NLP technologies. Baidu Health platform utilizes AI for better provision of medical services. Finally, DuerOS features AI speech and image recognition technology to transform devices into smart devices.
Baidu Revenue Breakdown (RMB mln) | 2018 | 2019 | 2020 | 2021 | 2022 | Average |
Online Marketing services | 72,645 | 70,038 | 66,283 | 73,919 | 69,522 | |
Growth % | -3.6% | -5.4% | 11.5% | -5.9% | -0.8% | |
Cloud Services | 3,005 | 6,370 | 9,173 | 15,070 | 17,721 | |
Growth % | 112.0% | 44.0% | 64.3% | 17.6% | 59.5% | |
Others | 897 | 3,303 | 3,228 | 6,174 | 8,188 | |
Growth % | 268.2% | -2.3% | 91.3% | 32.6% | 97.5% | |
iQIYI | 24,989 | 28,994 | 29,707 | 30,554 | 28,998 | |
Growth % | 16.0% | 2.5% | 2.9% | -5.1% | 4.1% | |
Total | 101,536 | 108,705 | 108,391 | 125,717 | 124,429 | |
Growth % | 7.1% | -0.3% | 16.0% | -1.0% | 5.4% |
Source: Company Data, Khaveen Investments
Baidu Segments | Number of AI Developments | AI Developments % of Total | Revenue (RMB mln) | Revenue Breakdown % |
Online Marketing Services | 5 | 50% | 69,522 | 55.9% |
Cloud Services | 2 | 20% | 17,721 | 14.2% |
Others | 3 | 30% | 8,188 | 6.6% |
iQIYI | 0 | 0% | 28,998 | 23.3% |
Total | 10 | 124,429 |
Source: Company Data, Khaveen Investments
Out of the company's AI developments, half (5 out of 10) AI developments were from its Online Marketing Services segment, which is unsurprising as the segment is Baidu's largest segment by revenue representing 55.87% of its total revenue. For online marketing, we believe Baidu focuses its AI developments on this segment to increase its competitiveness in the digital ad market in China which we previously highlight had been increasingly competitive with the rise of Alibaba and Tencent. Thus, we expect the company's strongest AI focus on the segment to prevent the company from further losing market share.
Moreover, the segments with the second most AI developments are Others which include Baidu Maps, DuerOS and Apollo Project which is its robotaxi project. The company's other segment has the highest average growth at 97.5% which highlights its importance for Baidu. We also believe the company places a strong focus on the segment which includes its AV developments as the company had been selected by the Chinese government as the "National Champion" for autonomous vehicles.
Furthermore, the company's Baidu Cloud segment has 2 of the 10 identified AI developments and the segment has higher than its total average growth. The company's % of AI developments for the cloud (20%) is higher than the revenue contribution from the cloud at 14.2% which highlights its strong AI focus for the cloud which we believe is to enable the company to capitalize on cloud growth which we forecasted at a forward 4-year average of 36.1% previously. All in all, we expect the company to stand the opportunity to capitalize on its AI developments across all of its business segments except for iQIYI.
Baidu Leads AI with Automotive AI Development
Company | AI Development/ Platform | Medium | Use Case | Information Technology |
Alibaba | AliGenie | Audio | Smart Home Assistant | NLP |
City Brain | Data | Infrastructure Management | ML | |
Tongyi Wanxiang | Image | Content Creation | NLP | |
DingTalk | Audio | Customer Service | NLP | |
Taobao Image Search | Image | Personalization | ML | |
Tencent | Invisible Caregivers | Data | Aged Care | ML |
WeChat Chatbot | Text | Chatbot | NLP, Computer Vision | |
Tencent Cloud AI | Data | AI Model Development | ML | |
Tencent AI lab | Data | Research | ML | |
Tencent Intelligent Mobility | Data | Autonomous Driving | ML | |
Huawei | Ascend 910 | Data | Productivity | ML |
Huawei HiAI | Data | Infrastructure Management | ML | |
MindSpore | Data | Infrastructure Management | ML | |
Huawei Cloud AI | Data | Infrastructure Management | ML | |
DJI | DJI AI Module | Audio, Video, Image | Personalization, Education | NLP |
Megvii | Face++ | Image | Security | Computer Vision, ML |
iFLYTEK | iFLYTEK Open Platform | Audio, Text | Decision Support | Computer Vision, NLP |
Meitu | Meitu App | Audio, Video, Image | Content Creation | ML |
SenseTime | SensePass | Audio, Video, Image | Identity Verification | Computer Vision, ML |
UBTECH | Ubtech Robotics | Audio, Video, Image, Data | Logistics, Healthcare, Customer Service | Robotics and Autonomous Systems |
Source: Company Data, Khaveen Investments
Besides Baidu, we compiled several AI developments of key Chinese companies to compare with Baidu. Among the companies, Alibaba and Tencent are tied with the most AI developments including AliGenie for smart home assistant using NLP, City Brain for data infrastructure management using machine learning, Tongyi Wanxiang for image content creation using NLP, DingTalk for audio customer service using NLP and Taobao AI image search for personalized search. On the other hand, Tencent's Invisible Caregivers is an AI-powered tool that uses sensors to detect and alert caregivers if a person falls. The WeChat Chatbot which uses computer vision and NLP technologies was planned to be integrated into its messaging platforms. Its Tencent Cloud TI Platform enables AI model training and deployment, Tencent AI Lab for research applications and Tencent Intelligent Mobility which is part of its cloud business where it partners with autonomous makers for storage of their AV systems.
Huawei also has multiple AI developments, while other companies like DJI , Megvii , iFLYTEK, Meitu , SenseTime and UBTECH have specific AI developments focusing on various applications such as security, decision support, content creation, identify verification, logistics, healthcare, customer service and personalization, using technologies like computer vision, NLP, robotics and machine learning. Overall, we believe that Baidu has more AI developments than its competitors as highlighted in the previous point.
Area | Category | Value Opportunity ($ bln) |
Drug discovery | Healthcare and life sciences | 10 |
Clinical-trial optimization | Healthcare and life sciences | 10 |
Clinical-decision support | Healthcare and life sciences | 5 |
Product R&D | Manufacturing | 15 |
Process-design R&D | Manufacturing | 100 |
Autonomous driving | Automotive, transportation, and logistics | 335 |
Personalized updates | Automotive, transportation, and logistics | 30 |
Fleet asset management | Automotive, transportation, and logistics | 15 |
Data & middleware | Enterprise software | 45 |
SaaS applications | Enterprise software | 35 |
Source: McKinsey , Khaveen Investments
According to McKinsey, Autonomous driving in the category of Automotive, transportation, and logistics has the highest value opportunity, amounting to $335 bln. This indicates that there is significant potential for investment and growth in process-design research and development within the manufacturing sector. Based on our comparison, we identified that among the top tech firms in China, Baidu stands out with its development in AV and robotaxis with its Apollo Project. Furthermore, as mentioned in the first point, the Chinese government selected Baidu as the key big tech company to focus on autonomous driving development in the country. Thus, we believe this supports Baidu as the key AI leader in China with the most AI developments and with AV developments that represent the largest area of opportunity based on McKinsey.
Risk: Competition in Autonomous Vehicle Developments in China
We believe one of the risks to Baidu is the competition from other smaller companies in AV development. For example, AutoX has deployed a fleet of 25 unmanned autonomous vehicles on public roads in Shenzhen for testing. Additionally, Didi Chuxing also has AV developments and plans to commercialize its vehicles by 2025. Notwithstanding, we believe Baidu stands out as the company with the most AI patents and was selected as one of the "National Champions" in China for AV.
Verdict
In conclusion, Chinese enterprises, notably Baidu, Tencent, Huawei, and Alibaba, exhibit dominance within the realm of machine learning and AI patents. With a staggering 13,993 active patent families in 2022, Baidu leads the pack, surpassing global giants like IBM, Samsung, and Microsoft. We believe this ascendancy is underpinned by governmental backing, encompassing initiatives like the New Generation AI Development Plan for 2030, substantial investments of $32.5 bln in AI ventures, and frameworks such as Made in China 2025, all fostering an environment conducive to AI advancement.
Based on our analysis, of Baidu's AI advancements, half stem from Online Marketing Services, strategically targeting the competitive digital advertising sphere dominated by Alibaba and Tencent. The Others segment showcases its adaptable AI focus, notably in AV with a 97.5% average growth. We believe Baidu's "National Champion" status for autonomous vehicles reinforces this. Furthermore, we believe Baidu stands to capitalize on the massive AV market opportunity in China valued at $335 bln according to McKinsey with its position endorsed by the government, solidifying its pioneering role in Chinese AI leadership and could support its growth outlook. Based on analysts' consensus, the company has a price target of $177.33 which is an upside of 35.8%, thus we rate the company as a Buy.
For further details see:
Baidu: AI Leader Of China