"文心一言" App daily active users exceed one million, Baidu is expected to undergo a valuation reassessment.

Source: Gu Xinyu, Sun Mengqi, Zhao Li from China International Capital Corporation Limited (CICC)

The first batch of enterprise/institutional large models has been registered and can provide services to C-end users, including Baidu Wenxin Yiyuan, ByteDance Yunque, SenseTime Ririxin, Zidong Tai Chu from the Chinese Academy of Sciences, Baichuan Intelligent Baichuan, Zhipu Huazhang GLM, MiniMax ABAB, Shanghai Artificial Intelligence Laboratory Shusheng General Model, iFLYTEK Xinghuo, Alibaba Tongyi Qianwen, Huawei, and Tencent, etc. According to iFLYTEK's disclosure on the Shenzhen Stock Exchange's interactive platform, more approved lists will be announced by local regulatory authorities in about a week.

Baidu Wenxin Yiyuan can be downloaded from the app store. Baidu's web search/app has added AI conversation functionality and will open up refactored native AI applications, which have advantages in terms of traffic. In addition, SenseTime's "SenseChat", Zhipu AI's "Zhipu Qingyan", Baichuan Intelligent's "Baichuan Large Model", and iFLYTEK's "Xinghuo" will be open for registration on August 31.

Baidu Leading the Way

Baidu may take the lead in terms of scale, with a relatively controllable impact on profit margins, which will boost the profitability of its cloud business in the long term.

As of August 30, the cumulative download volume of the app since its launch on June 30 is 630,000 (Qimai). After the full opening on August 31, the current download volume of Wenxin Yiyuan for iOS has risen to the top of the free list.

The latest data from Baidu's official platform shows that on the first day of the opening of the "Wenxin Yiyuan" service (from 0:00 to 24:00 on August 31), a total of over 33.42 million questions were answered to netizens, and the daily active users exceeded one million.

1. For the C-end, the company's commercial products are already complete and have basically completed the transformation of existing products and businesses. The commercialization progress will be adjusted according to the speed of user scale-up. If the user scale increases rapidly, monetization may be accelerated to release pressure on computing power and bandwidth costs, and profit margins may be controllable.

2. For the B-end, it is expected to conduct large-scale testing in collaboration with partner manufacturers, which is expected to drive revenue growth in the cloud business. In the long term, the profit margin will be better than the existing cloud business as the business scales up, continuing to boost the release of cloud business profits.

Investment Recommendations

The implementation of policies is expected to promote the more standardized development of the industry in terms of content generation and drive commercial innovation, expanding the potential growth space of the industry.

Wenxin Yiyuan has the advantage of Baidu's traffic (Baidu APP has 677 million active users in June) and search products, as well as technical and financial support. It is expected to become the product that can achieve the fastest growth.

We are optimistic about the reconstruction of Baidu's products and the potential driving effect on revenue by Wenxin's large model. We have not yet considered the monetization assumption of large-scale adoption of the large model product and will continue to monitor its progress and adjust our expectations in a timely manner.

We currently maintain a target price of $170/165 Hong Kong dollars (9888 HK/Buy), corresponding to a 16x P/E ratio for 2024, and maintain a Buy rating.

We expect that with the implementation of policies and the accelerated development of industry applications, domestic AI companies are expected to undergo a valuation reassessment.