Chinese web giant Baidu yesterday told investors it sees good days ahead for its Kunlunxin chip biz, because local buyers won’t have alternatives.

Baidu has previously said it plans to spin out and float Kunlunxin, which makes CUDA-compliant inferencing chips that it uses for its own cloud services and has sold to the likes of Huawei and ZTE, who use them in kit they sell to Chinese telcos.

Speaking on the company’s Q2 earnings call, Dou Shen, executive veep of Baidu’s AI Cloud Group, said Baidu is working to list Kunlunxin and will have concrete info to share soon.

“From a business perspective, we remain very confident in Kunlunxin’s long-term growth and commercial potential for a few reasons,” he said. One of those reasons is that demand for inferencing continues to rise, and Baidu thinks that trend will continue for the long term.

His second reason was that China’s domestic market has “significant growth potential” because supply of AI chips is “likely to remain constrained for some time.”

“Against this backdrop, customers are increasingly seeking high performance, reliable, and cost-efficient domestic AI chips.”

Those remarks are notable in the context of the US government’s policy to allow Nvidia to resume sales of its products into China, and Beijing’s response of giving itself a veto over any purchases by local companies.

After Washington banned Nvidia from selling its products in China, the company said that decision cost it $10.5 billion in six months. In its most recent results announcement the GPU giant said it had not won any revenue in China after the USA’s policy reversal, and is “uncertain whether any imports will be allowed into the country.”

And now Baidu is saying Chinese buyers are looking to local chips due to supply challenges.

Nvidia CEO Jensen Huang has argued that the Trump administration should encourage chip sales to China, to cement the USA's dominance of AI. Beijing has encouraged adoption of local tech, in part to reduce dependence on US products.

Baidu’s earnings included strong growth for its AI business, which saw revenue from cloud infrastructure rental rise 50 percent year over year to almost $1.1 billion, and revenue from the company’s GPU cloud surge 283 percent year-over-year, trumping the 184 percent growth in the last quarter.

Those numbers are modest compared to the likes of AWS, Google, and Microsoft – and also a fair way down the charts among Baidu’s Chinese competitors. The company believes owning its own stack of models, infrastructure, and chips will mean it can deliver AI services at keen prices and give it a market advantage. Alibaba makes similar claims and is arguably far ahead of Baidu in terms of model-making capabilities.

But Baidu has the robo-cab field to itself with the Apollo Go service, which execs said provided over one million fully autonomous rides around the world in Q2.

Back on the web, execs enthused about low hallucination rates for the company’s consumer-AI services, and an 83 percent year-over-year increase in the number of daily active users for Baidu’s ERNIE assistant – which saw the number of conversations users stage daily more than triple.

Overall revenue grew just four percent year-over-year to $3.9 billion, meaning Baidu’s AI cloud is the company’s growth engine. ®