To The Moon

ChatGPT becomes a hot topic worldwide.

• What is ChatGPT?

ChatGPT is an intelligent chatting software that has caught the world's attention because of its overly precise and anthropomorphic answers to questions.

ChatGPT can write emails and essays, poetry, answer questions, or generate lines of code based on a prompt.

After ChatGPT went viral, $Microsoft(MSFT)$ immediately announced investment of billions and plans to incorporate it into office and cloud computing to enhance product intelligence.

$Alphabet(GOOG)$ and $Baidu(BIDU)$ subsequently announced that they are developing similar features to ChatGPT. $BIDU-SW(09888)$ announced that it would incorporate the new function into Baidu search in March this year. Thus Baidu was hailed as the Chinese version of ChatGPT and its stock price soared for 2 consecutive days.

In fact, ChatGPT brought humans a shock somewhat similar to when Google's AlphaGo defeated the world chess king Lee Sedol. At that time, artificial intelligence was just in its infancy and could not bring actual earnings. Now, OpenAI, the developer of ChatGPT, has generated tens of millions of dollars in revenue.

ChatGPT is also epoch-making because AI is starting to revolutionize the way humans access information. In the future, Baidu search and Google search will face challenges.

ChatGPT's success will depend on a lot of data and computing power, and Baidu is undoubtedly the most likely company to launch a Chinese version of ChatGPT.

Baidu all in AI

As early as 2017, Baidu started all in AI.

1) Baidu developed the Apollo autonomous driving technology that is leading in China. By the end of 2021, the Apollo partner network grows to over 30 car brands, including automakers from General Motors, Ford, Honda and Great Wall, among others.

2) Baidu's Apollo Go has become the world's largest provider of driverless car services. in the third quarter of 2022, Apollo Go supplied more than 474,000 orders for driverless travel services, up 311% year-over-year and 65% sequentially.

In terms of financial data, Baidu does not separately list revenue from autonomous driving as revenue from AI business, which is considered to be relatively small. The market has been disparaging Baidu for its stagnant search business and AI failing to generate revenue.

Baidu's business is transforming

In terms of business segment, it is divided into online marketing services and other businesses.

Online marketing services revenue of RMB 19.94 billion in the third quarter of last year, down 5.3% year-on-year.

Other revenue, which includes businesses such as intelligent cloud, smart devices and autonomous driving, was 12.6 billion, up 16 percent year-on-year.

If we look at a longer period, the proportion of other revenues has increased from 0% in 2010 to 38.7% in the third quarter of last year.

Baidu's traditional online marketing services revenue has really lost its growth. And with the development of short video, there is a risk that its advertising revenue will decline.

The emergence of ChatGPT has the potential to save Baidu's core search business. Together with Baidu's research on AI for many years, the Chinese version of ChatGPT is most likely to appear in Baidu. The next step will be to see if Baidu can successfully transform.

Low valuation prompts its rally

Another important reason for Baidu's big jump in stock price is the low valuation.

Since Baidu had a large investment loss last year, resulting in a significant decline in net profit, P/E ratio can't truly reflect the current valuation. The price-to-sales ratio is more appropriate.

Currently, Baidu's price-to-sales ratio is only 2.9 times, which is near the historical low.

The era once again offers an olive branch, I hope that Baidu will not repeat the tragedy of missing the mobile era.