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Baidu shares gain after earnings rise. AI makes money, but there are risks.

Baidu shares rose Tuesday after the Chinese technology company reported better-than-expected quarterly results and gave investors hope for the growth of its artificial intelligence business amid risks for the sector.

Baidu (ticker: BIDU) reported earnings of 20.40 Chinese yuan ($2.86) per share on revenue of 34.5 billion yuan ($4.8 billion), beating market expectations. analysts polled by FactSet, who forecast earnings of 17.11 yuan per share on revenue of 34.3 billion yuan. This represents profit and revenue growth of 21% and 6%, respectively, results that make one smile, given China’s economic slowdown.

“Baidu reported strong third-quarter financial results, demonstrating its resilience in a challenging economic climate,” said Robin Li, co-founder and CEO of the company.

Hailed as China’s answer to Google, Baidu’s core business remains online search and advertising, although the group also has an interesting artificial intelligence (AI) business with units covering self-driving taxis, cloud computing and a ChatGPT type AI robot. Baidu began charging for its robot, called Ernie, this month outside of its third-quarter results, but AI updates still took center stage.

“We have fully opened the ERNIE API to cloud companies, allowing them to develop their own native AI applications and solutions. Our AI-centric business and product strategy is expected to pave the way for sustainable, multi-year revenue and profit expansion within our ERNIE and ERNIE Bot ecosystem,” Li said, adding that it has also leveraged its capacity in terms of AI to “reinvent our consumer-oriented approach”. and enterprise products, as well as our own operations.

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But risks likely remain for the AI ​​sector, highlighted by explosive news from peer Alibaba (BABA) last week. Also looking at the AI ​​sector, Alibaba warned that expanding US export controls on advanced chips – an attempt to control China’s access to critical technologies – had criticized its AI activity. AI, hosted within the group’s cloud division.

The U.S. rules “could materially and adversely affect Cloud Intelligence Group’s ability to offer products and services and perform under existing contracts, thereby adversely affecting our results of operations and financial condition,” Alibaba said.

It would be reasonable for investors to believe that similar risks exist for Baidu, which will also need to secure its chip supply to fuel its AI growth. Indeed, Alibaba shares have lost 10.5% since their disclosure last Thursday, and Baidu shares fell as much as 5.5% over the same period – before paring losses – as the sell-off was spreading.

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For now, Baidu maintains that AI continues to be a pillar of growth – or at least a good one. Shares of the company rose 2.4% in U.S. pre-market trading Tuesday after reporting its earnings.

Write to Jack Denton at jack.denton@barrons.com

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