Baidu:All in AI

类型：公司研究机构：麦格理证券股份有限公司研究员：麦格理证券研究所日期：2017-07-21

Conclusion

    We attended Baidu’s first AI conference with over 4000 developers. Amongvarious AI projects, Baidu highlights Apollo (autonomous driving) and DuerOS (operating system). We are encouraged to see the initial progress Baidumade on AI and concrete plan set out for the next three years under the newleadership. Maintain Neutral with US$189 TP, mainly based on existingsearch and video business. While it is too early to include AI in Baidu’s SOTP,we believe this will be the game changer for Baidu’s valuation down the road.

    Impact

    Embracing AI at full speed. Baidu President Lu Qi sees great potential in AIand expects the penetration rate of conversational-based AI application togreatly improve by 2020 (27% penetration rate for smart appliances, 51% forautonomous driving, 68% for wearable devices.) Baidu currently has over2000 AI engineers and will leverage trillions of search data and billions oflocation data to develop its AI. On the site, Baidu announced to fully acquire aSeattle-based AI company KITT.AI. We estimate Baidu’s R&D cost toincrease 36% yoy in 2017, with the incremental Rmb3.2bn all deployed inAI. Baidu Capital, which is led by Baidu’s ex CFO Jennifer Li, will also investmost of its Rmb20bn capital in AI.

    AI open ecosystem in the making. At the Conference, Baidu unveiled threesets of DuerOS developer toolkits. In addition to access to artificialintelligence robots, DuerOS also supports mobile phones, TVs, speakers,cars, robots and other hardware devices, while supporting third-partydeveloper access. Baidu aims to make DuerOS an open operating system inAI era like Android. The demonstration at Conference showcased DuerOS’scapability to significantly shorten the time foreign companies may need tolocalize their product in China.

    A clear roadmap for autonomous driving. At the conference, Baiduunveiled Apollo 1.0, the first generation of its autonomous driving platform.

    Baidu will work with 50 partners including Chery Auto to start with, offeringApollo technology to partners for free and collecting user data in exchange. Italso announced to set up companies in Singapore and the US to help testingcars with Apollo. Baidu laid out a detailed agenda for Apollo for the next sixmonths and expects its mass usage on highways and normal roads by 2020.

    Earnings and target price revision

    No change.

    Price catalyst

    12-month price target: US$189.00 based on a Sum of Parts methodology.

    Catalyst: AI monetization, core search growth accelerationAction and recommendation

    Maintain Neutral.