Baidu shares slump nearly 10% as new Ernie 5.0 AI model fails to impress investors

Baidu shares took a hit after the Chinese search giant’s latest AI model failed to satisfy investors, marking its biggest decline in seven months.

Hong Kong-traded Baidu shares fell nearly 10% on Friday after the company introduced Ernie 5.0. Although enthusiasm waned after the latest upgrade, the stock is still up more than 40%.

However, collectively, there has been a pause in the global surge of AI, driven by concerns over high valuations and expensive investments.

Baidu’s Ernie 5.0 is unimpressive next to competitors

Ernie 5.0 from Baidu is designed to work with text, image, audio, and video content. It’s designed to understand different types of media, follow instructions, write creative text, think logically, and plan actions and use tools effectively.

The model was unveiled on Thursday along with a portfolio of new AI offerings and an international expansion program. The other improvements include a more advanced Miaoda 2.0 no-code app builder, a smarter Baidu Search experience, and a new version of its AI agent, GenFlow 3.0.

Speaking at the launch conference, Robin Li, co-founder and CEO of Baidu, emphasized that AI needs to be integrated into every aspect of today’s workflows. He commented, “When you internalize AI, it becomes a native capability and transforms intelligence from a cost into a source of productivity. We should focus on integrating AI with every task we do to make it a native driving force for corporate and personal growth.”

However, Ernie 5.0 still leaves some investors and analysts unimpressed. Bloomberg Intelligence’s Robert Lea noted that, despite its strengths, the model doesn’t stand out sufficiently from others.

He added, “The revamped AI lineup is unlikely to transform its earnings outlook, which remains highly challenged.”

Baidu is also preparing to launch Kunlun chips

Baidu announced on Thursday its plans to launch Kunlun chips. The Kunlun M100 is expected to arrive in 2026, while the Kunlun M300 is anticipated to arrive in early 2027.

Forrester Vice President and Principal Analyst Charlie Dai noted that Kunlun’s chip strategy will play a significant role in reducing dependence on foreign GPU suppliers and achieving both cost-effectiveness and performance effectiveness.

Regardless of its mixed reception, Baidu considers Ernie 5.0 central to its cloud business and long-term ambitions to infuse AI throughout its ecosystem — from search and maps to smart devices and enterprise tools.

The company also hopes that a common AI layer will attract more developers to architect on its platform, generating subscription revenue and increasing cloud utility.

Whether those goals come to pass could depend on Baidu’s ability to accelerate upgrades, overhaul the user experience, and gain a leadership role in China’s cut-throat AI industry.

Li also spoke with great confidence about how the future of AI-human interactions should naturally move in this direction, where there will be a standard interaction layer across the entire AI age.

Baidu also opened its HuiboXing digital human technology to developers worldwide. Sales generated by digital human livestreams jumped 91%, and livestream sessions increased 119% compared to last year’s Singles Day.

Lu Yanxia, research director at market consultancy IDC China, speaking on Baidu’s developments, remarked, “The multimodal LLM is an undeniable future development direction for generative AI technology.”

Still, competitors are stepping up. Alibaba said it plans to revamp its main mobile AI app to resemble ChatGPT. Though on Friday, its shares slid 3.5%.

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