Baidu Bets Big on A.I.

Baidu Inc.’s stock offering in Hong Kong Tuesday marks an unlikely resurgence for founder Robin Li, who has fought his way back to relevance in China’s technology industry after squandering a near-monopoly in search.

The internet giant raised $3.1 billion in the biggest homecoming by a U.S.-traded Chinese firm in the city since JD.com Inc. last June. Li’s firm has more than tripled its valuation from the trough last March, with about half the gains coming in the past three months as Baidu’s bets in AI finally start to pay off in areas like cloud and electric vehicles. It’s a rare stretch during which the company has outperformed larger rivals Alibaba Group Holding Ltd. and Tencent Holdings Ltd., whose shares have struggled in the wake of China’s campaign to crack down on its freewheeling tech industry.

In an exclusive interview, the 52-year-old founder sketched out how Baidu is transforming into an AI company and why he supports Beijing’s antitrust push. The firm will continue to team with automakers like Geely to stake out a position in the world’s biggest vehicle market, sustain a record pace of R&D investment despite compressing margins, and seek to acquire talent and technologies to drive AI development, Li said. Eventually, the bulk of Baidu’s revenue will come from businesses beyond search and advertising, he added.

“We’ve been investing in AI for more than 10 years and we probably lost a lot of money by doing this,” Li said in an interview with Bloomberg Television. “Eventually we’ll be rewarded.”

Baidu closed out its first day of trading in Hong Kong unchanged after rising nearly 2% earlier in the session. Its muted debut compares with first-day gains of 3.5% at JD.com and 5.7% for Netease Inc., two other U.S.-listed Chinese firms that turned to the city for secondary listings.

Once part of China’s internet triumvirate alongside Alibaba and Tencent, Baidu has fallen behind in the mobile era, where the effectiveness of its search service has been crippled by super-apps like WeChat creating siloed ecosystems. To compete, Baidu’s core search product is morphing into an all-purpose platform hosting an array of content from news articles to live-streams and short videos, essentially emulating those apps.

Baidu has vastly outshone larger rivals in the post-pandemic era

Meanwhile, Baidu has sunk billions of dollars over the past decade into areas from natural language processing to voice interaction, an endeavor that ran into initial trouble with departures of key executives like its well-regarded chief scientist Andrew Ng. Until recently, investors had called into question the firm’s R&D spending, which amounted to roughly a fifth of its 2020 revenue. But Li has kept faith in his original vision and is pledging to keep up the pace of investment for the next decade or two.

“For the most part of the past 10 years, I think that investors did not appreciate that,” Li said. “So we were kind of feeling lonely. But it is really in line with our mission.”

Now, commercialization is finally coming to the fore. In January, Baidu unveiled a new venture with Zhejiang Geely Holding Group that will produce smart EVs, prompting analysts to revalue the tech giant’s eight-year-old Apollo unit, whose self-driving software had drawn tepid interest from automakers in the past. The venture with Geely will accelerate that integration, Li said, with the goal to deliver its own EVs to the market within three years.

Semiconductors are another use case. Like Alphabet Inc.’s Google and Amazon.com Inc., Baidu started to custom design chips for its own server farms, performing tasks like search rankings. But what started as a cost-saving exercise has morphed into a new business, with nearly half of its Kunlun chips used by third parties last year. The new 7-nanometer iteration of the AI silicon has started production at fabs despite the global chip shortage, Li said. The unit -- which recently raised $230 million from investors like IDG Capital -- will target more external clients in areas from finance to education and energy, he added.

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