Analysis of the Impact of Baidu Ernie Large Model Commercialization on AI Cloud Business Gross Margin Improvement

According to the latest financial data, Baidu Intelligent Cloud business has shown a significant growth trend driven by the commercialization of the Ernie Large Model. In Q4 2024, Baidu Intelligent Cloud revenue increased by 26% year-on-year, which was significantly faster than the first three quarters (12%/14%/11%), mainly driven by strong demand for generative AI and large models [1][2].

• Ernie Large Model’s daily average API calls reached 1.65 billion in December 2024, a 33-fold increase compared to the same period last year [1]
• External API calls increased by 178% quarter-on-quarter
• Ernie Bot (Wenxin Yiyan) user scale reached 430 million, and it was opened for free starting April 1st
• 22% of Baidu search results are AI-generated, and 83% of Mobile Baidu search MAUs have accessed AI search results

The commercialization of Ernie Large Model improves cloud business gross margin through the following paths:

According to financial report data, the operating profit margin of Intelligent Cloud has continued to grow year-on-year [1][2]. BOCOM International’s research report points out that benefiting from the pull of generative AI demand, cloud business growth accelerated significantly in Q4 2024, and it is expected that the full-year revenue growth rate in 2025 will maintain 20%, higher than 16% in 2024 [1].

• Intelligent Cloud Revenue Growth Rate
  : Increased from 12% in Q1 2024 to 26% in Q4 [2]
• 2025 Revenue Guidance
  : Expected to grow 20% year-on-year, a significant increase from the previous expectation of 13% [1]
• External API Calls
  : 178% quarter-on-quarter growth, indicating rapid adoption by enterprise customers

• Large model inference costs have decreased significantly with the growth of call volume
• Increased infrastructure utilization leads to marginal cost reduction
• Technological breakthroughs such as DeepSeek further benefit underlying IaaS and MaaS demand

According to Baidu’s official disclosure, the profit inflection point of the Intelligent Cloud business has arrived [3]. The success of Ernie Bot (Wenxin Yiyan) proves that large model technology can not only bring technological innovation but also create sustainable commercial value. According to IDC forecasts, the scale of China’s AI cloud service market will exceed 20 billion yuan in 2024, with a CAGR of 45%, and manufacturers with full-stack AI capabilities will occupy more than 60% of the market share [3].

• Main Business Cost: 66.1 billion yuan
• Gross Profit: 67 billion yuan (expected to improve as the proportion of cloud business increases)

The commercialization of Ernie Large Model has a significant positive impact on the gross margin improvement of Baidu’s AI Cloud business:

1. Short-term
   : Reduce inference marginal cost through scale effect and improve operating profit margin
2. Medium-term
   : AI capability layer competition brings high-value-added income and optimizes revenue structure
3. Long-term
   : Verify the sustainability of large model commercialization and promote valuation re-rating

With the open-sourcing of Ernie Large Model 4.5 series and free access to end users, enterprise and user awareness is expected to further improve. The acceleration of domestic AI application deployment by open-source models like DeepSeek will also increase the demand for Baidu Cloud services from enterprise customers and developers. It is expected that Baidu Intelligent Cloud will continue to maintain a rapid growth trend in 2025.

[1] BOCOM International Research Report - “Baidu (BIDU US) Q4 2024 AI Cloud Exceeds Expectations, Second Growth Curve Value Emerges” (https://pdf.dfcfw.com/pdf/H3_AP202502201643319245_1.pdf)

[2] Soochow Securities Research Report - “2024 Q4 Performance Review: Optimistic About Accelerated Cloud Business Growth in 2025” (https://pdf.dfcfw.com/pdf/H3_AP202502241643426750_1.pdf)

[3] Baidu Intelligent Cloud Official Article - “Ernie Bot Ignites AI Market, Baidu Intelligent Cloud Profit Inflection Point Arrives” (https://cloud.baidu.com/article/4121137)