While Baidu is primarily recognized for its significant role as China’s largest search engine, the company has shifted its focus in recent years towards autonomous vehicles and artificial intelligence. This transformation is exemplified by its majority-owned subsidiary, Kunlunxin, which specializes in chip design.

Recent weeks have seen several analysts revising their forecasts for Baidu’s stock upwards. They attribute this positive outlook to the company’s burgeoning semiconductor division, anticipating that this segment will secure an increasing number of domestic contracts.

In a strategic move, Baidu unveiled a five-year development plan for its Kunlun AI chips this month. The roadmap outlines the release of the M100 chip in 2026, followed by the M300 in 2027. Currently, Baidu integrates a combination of its own chips and Nvidia products within its data centers to power its ERNIE AI models.

This month, Baidu laid out a five-year roadmap for its Kunlun AI chips, beginning with the M100 in 2026 and the M300 in 2027. The company already uses a mix of its self-developed chips in its data centers to run its ERNIE AI models, as well as Nvidia products.

Baidu makes money by selling its chips to third parties building data centers as well as renting out computing capacity via its cloud. It has sought to position itself as a so-called “full stack” AI offering with infrastructure made up of chips, servers and data centers, as well as AI models and applications.

And the chip business appears to be gaining traction. Earlier this year, Kunlunxin won orders from suppliers to China Mobile, one of the country’s biggest mobile carriers.

“Kunlunxin has emerged as a leading domestic AI chip developer, focusing on high- performance AI chips for large language model (LLM) training and inference, cloud  computing, and telecom and enterprise workloads,” analysts at Deutsche Bank said in a note this month.

While Nvidia’s graphics processing units (GPUs) are widely regarded as the most advanced chips for training and running AI, the company has been blocked by the U.S. government from selling its top-end product to China. Beijing has also reportedly been persuading local tech companies not to buy the H20, a less powerful Nvidia chip designed for the Chinese market and greenlit for export.

With Huawei — the leading player through its massive clusters of chips — out of the picture, analysts are suggesting Baidu will fill the void and its chip business is set for explosive growth.

“We believe domestic demand for AI compute in China remains intense, and hyperscalers are increasingly sourcing from local solution providers,” JPMorgan said in a note on Sunday. “We view Kunlun AI chip as one of the best positioned.”

The investment bank analysts forecast Baidu chips sales to increase six-fold to reach 8 billion Chinese yuan ($1.1 billion) in 2026.

Analysts at Macquarie estimate that Baidu’s Kunlun chip unit could be valued at about $28 billion.

Baidu is not alone among China’s tech giants when it comes to self-developed semiconductors. CNBC reported in August that Alibaba is also developing its next-generation AI chip.

Baidu’s chip push comes as Chinese tech giants this month said they’re seeing supply shortages.

Eddie Wu, CEO of Alibab, said that “the supply side is going to be a relatively large bottleneck” over the next two-to-three years, referring to components and chips required to build data centers.

Tencent said this month that its 2025 capital expenditure would be lower than initially anticipated. But Tencent President Martin Lau said this this was not because of a lack of demand, but more a shortage of available chips to spend the money on.

“It is not a reflection of our change in AI strategy … It is indeed a change in terms of the AI chip availability,” Lau said.

Part of this shortage has been driven by global demand and resulting bottlenecks in the semiconductor supply chain. But China’s effective block of Nvidia chips has also reduced the supply.

Chinese tech firms have tried to mitigate the shortage by using stockpiled chips, as well as trying to make their AI models more efficient to do more with the semiconductors they have.

Meanwhile, China has its own challenges with manufacturing because its biggest chipmaker SMIC, is unable to compete on the scale and technology with leaders like Taiwan Semiconductor Manufacturing Co. That makes it hard for the China to manufacture enough domestic chips to fill the shortfall.

Like their U.S. counterparts, Chinese tech companies have continually reported strong demand for AI.

“We see that customer demand for AI is and remains very strong. In fact, we are not even able to keep pace with the growth in customer demand … in terms of the pace at which we can deploy new servers,” Alibaba’s Wu said this week.

That gives Baidu an opportunity in China.

“Baidu’s chip push is both a necessity and an opportunity. It’s a necessity, because Chinese platforms can no longer assume a steady diet of US GPUs; opportunity, because there’s now a semi‑captive, multi‑billion‑dollar domestic market for AI hardware that is compliant with both US export rules and Beijing’s self‑reliance agenda,” Nick Patience, practice lead for AI at The Futurum Group, told CNBC.

“If Baidu can ship competitive Kunlun generations on time, it doesn’t just solve its own supply problem — it becomes a strategic supplier to the rest of China’s AI industry.”