Robin Li, chairman and CEO of Chinese search engine operator Baidu, is having trouble convincing investors about his company’s growth outlook – even with the billionaire’s recent advances in the red-hot generative AI market.

Shares of the dual-listed Baidu fell more than 7% in Hong Kong on Thursday after plummeting 8% on the Nasdaq overnight. Investors were reacting to the company’s fourth quarter results, which showed revenues growing at a year-on-year 6% but net income plunging 48% to $366 million.

The steep drop was partly due to accounting changes in the value of certain preferred shares, but investors are clearly worried that Baidu isn’t growing fast enough. The 6% revenue increase over the final three months of 2023 is on par with the previous quarter, but much slower than the 10% and 15% seen in the first and second quarters of last year.

Kenny Ng, a Hong Kong-based securities strategist at Everbright Securities International, says investor enthusiasm is unlikely to be rekindled – at least not in early 2024. The Chinese search giant relies on online advertising for more than half of total sales, which stood at 35 billion yuan ($4.9 billion) in the last quarter, but faces sluggish demand as companies cut back spending amid a softening Chinese economy.

In the meantime, Baidu’s progress in generative AI, the technology that powers chatbots such as OpenAI’s ChatGPT, isn’t generating revenue yet. In October, Baidu unveiled its latest AI model, Ernie 4.0, and said at the time the product was as good as OpenAI’s GPT-4, in part because it can solve complex math problems and use reasoning to answer questions.

But the Ernie chatbot, which has attracted more than 100 million users, only made “incremental” revenue contributions in the past quarter, executives said during Wednesday’s analysts call. Li, who saw his net worth shrink $510 million Wednesday to a current $6.2 billion as the value of his company stake dropped, said revenues increased an additional several hundred million yuan as Baidu helped other enterprises build their own AI models and customers place better tailored advertisements.

Ernie’s contribution will grow to “several billion RMB” in 2024, according to the mogul, who reiterated his unwavering investment in AI-related technologies down the road. But his plans may not be enough to satisfy investors, who have high hopes for the technology following OpenAI’s repeated breakthroughs including the February launch of text-to-video model Sora.

Baidu’s Silicon Valley rival reportedly hit $2 billion in revenues in 2023, and $80 billion in valuation following a recent funding deal, showing investors’ confidence. The Chinese search engine operator, by comparison, currently has a market cap of $36 billion.

“Ernie’s current progress isn’t enough to make investors rush into the stock,” says Zhang Xueru, a Shanghai-based analyst at research firm 86Research.

But analysts say it is too early to dismiss Baidu, which remains a leader in the field. During Wednesday’s call, Li also said he is working to revamp Baidu’s core search platform by integrating various generative AI-related features. The changes may potentially help Baidu enhance its user experience, subsequently leading people to spend more time in its app.

What’s more, the company’s focus on AI may help it gain an edge in cloud computing, another important growth driver that was the main reason behind a 9% rise in non-online marketing revenues to $1.2 billion in the December quarter. As the company provides more AI-based tools such as those for analytics to companies, it might win the competition as rivals including Alibaba Cloud now use aggressive price cuts to win over customers.

“There is a chance that Baidu can return to double-digit growth in 2024,” says Everbright’s Ng. “Its biggest opportunity still comes from Ernie.”

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