Baidu: DeepSeek Has Implications for Chinese Companies

Based on DeepSeek’s initial claims about lowering computing costs to less than 5% of ChatGPT's costs while keeping similar performance, we believe this could be a wake-up call for Chinese artificial intelligence firms such as Baidu and not just US-based hyperscalers. While DeepSeek doesn't make Baidu’s AI model Ernie irrelevant—its freely distributed format makes monetization of Baidu’s AI business harder in the personal cloud segment. Our fair value estimate is unchanged at USD 157 (HKD 154). We haven't factored in much growth from the personal AI cloud business and DeepSeek shouldn't affect our valuation.