As both companies seek to fill the hole created by industry leader Nvidia's exclusion from the nation, IT giant Baidu is emerging as one of China's major players in artificial intelligence chips, establishing itself as a rival to Huawei.
Known for being the largest search engine in China, Baidu has recently refocused its operations on AI and autonomous cars, including its majority owned chip-designing subsidiary Kunlunxin.
Over the past several weeks, a number of analysts have raised their expectations for Baidu's shares, citing the company's semiconductor sector and predicting an increase in domestic orders.
Baidu unveiled a five year plan this month for its Kunlun AI chips, starting with the M100 in 2026 and the M300 in 2027. In order to operate its ERNIE AI models, the company currently uses a combination of Nvidia and its own CPUs in its data centers.
Baidu generates revenue by renting out processing power through the cloud and selling its chips to companies constructing data centers.
It has attempted to market itself as a "full stack" AI solution that includes AI models and apps in addition to infrastructure consisting of chips, servers, and data centers.
Additionally, the semiconductor industry seems to be expanding. One of the largest mobile carriers in the nation, China Mobile, placed orders with Kunlunxin earlier this year.
According to a note this month from Deutsche Bank analysts, "Kunlunxin has emerged as a leading domestic AI chip developer, focusing on high performance AI chips for large language model (LLM) training and inference, cloud computing, and telecom and enterprise workloads."
Although many people consider Nvidia's graphics processing units (GPUs) to be the most sophisticated chips for AI training and operation, the U.S. government has prohibited the business from exporting its premium product to China.
According to reports, Beijing has also been convincing regional IT firms not to purchase the H20, a less potent Nvidia processor approved for export but intended for the Chinese market.
Analysts predict that Baidu will fill the hole left by Huawei, the dominant player due to its enormous chip clusters, and that its semiconductor industry is poised for rapid expansion.
JPMorgan stated in a letter on Sunday, "We believe domestic demand for AI compute in China remains intense, and hyperscalers are increasingly sourcing from local solution providers." "We consider the Kunlun AI chip to be among the best positioned."
Investment bank experts predict that by 2026, Baidu chip sales would have increased sixfold to 8 billion Chinese yuan ($1.1 billion).
According to Macquarie analysts, Baidu's Kunlun semiconductor division may be worth roughly $28 billion. When it comes to self-developed semiconductors, Baidu is not the only tech behemoth in China.
Baidu's chip push coincides with Chinese IT companies announcement this month that they are experiencing shortages in supplies. In reference to the parts and processors needed to construct data centers, Eddie Wu, CEO of Alibab, stated that "the supply side is going to be a relatively large bottleneck" over the next two to three years.
This month, Tencent said that its capital expenditures for 2025 will be less than first projected. However, Tencent President Martin Lau stated that this was more due to a lack of accessible chips to spend the money on than a lack of demand. "It doesn't represent our shift in AI tactics. The availability of AI chips has changed, according to Lau.
Global demand and the ensuing constraints in the semiconductor supply chain have contributed to this shortfall. However, the supply has also decreased due to China's effective embargo of Nvidia chips.
Chinese IT companies have attempted to alleviate the shortage by utilizing chips that have been stockpiled and by improving the efficiency of their AI models to make better use of the semiconductors they already have.
China's largest chipmaker, SMIC, is unable to match industry heavyweights like Taiwan Semiconductor Manufacturing Co. in terms of scale and technology, hence China faces its own manufacturing issues.
Because of this, China finds it difficult to produce enough chips at home to cover the gap. Chinese tech companies have consistently reported high demand for AI, just like their American counterparts.
"We observe that consumer demand for AI is and continues to be quite high. Wu of Alibaba stated this week, "In fact, we are not even able to keep up with the growth in customer demand in terms of the pace at which we can deploy new servers."
Baidu now has a chance in China as a result. "Baidu's chip drive is an opportunity as well as a necessity. It's an opportunity because there is now a semi captive, multibillion dollar domestic market for AI hardware that complies with both US export regulations and Beijing's self reliance agenda; it's a necessity because Chinese platforms can no longer rely on a steady diet of US GPUs," Nick Patience, practice lead for AI at The Futurum Group. "Baidu becomes a strategic supplier to the rest of China's AI industry if it can ship competitive Kunlun generations on time, solving more than just its own supply problem."
