Baidu shares jump 10% following release of new free-to-use AI models

Shares of Chinese tech giant Baidu were trading up 10.7% in Asia on Tuesday, as investors appeared to react positively to the release of two new AI models over the weekend.  

Baidu released two new artificial intelligence models on Sunday, including the latest version of its foundational "Ernie" model and a new reasoning model that it said rivaled DeepSeek's R1 model. CNBC is not able to verify these claims.

A reasoning model is a large language model designed to process complex problems in a similar way to humans, breaking prompts down into smaller pieces and considering multiple approaches before generating responses. 

According to Kai Wang, a senior equity analyst for Morningstar, the stock jump is likely a "delayed reaction" to the new models as Baidu vies to regain a leading position in China's AI space. 

"The stock also hasn't gotten as much love as the other hyperscalers but still it's a platform that stands to benefit from greater AI demand since enterprises will need someone to help them with hosting, scaling, and computing power," he said.

A hyperscaler refers to a major cloud computing company that provides massive data centers for computing storage and demands.

Baidu said on Sunday that its ERNIE X1 reasoning model "delivers performance on par with DeepSeek R1 at only half the price," and has "stronger understanding, planning, reflection, and evolution capabilities."

Chinese AI start-up DeepSeek upended the AI industry in January when it released its R1 open-source reasoning model, which rivaled models of American competitors, despite claims it was produced at a fraction of the cost and with far less powerful chips.

DeepSeek quickly overtook Baidu in China's AI race, despite the company being one of the first in the market to launch a ChatGPT-like chatbot with its Ernie Bot, according to Wei Sun, principal analyst of artificial intelligence at Counterpoint Research, who noted other tech giants like Alibaba and Bytedance have also pulled ahead.

"Baidu's competitiveness hinges on whether its new models truly deliver on the promised performance and cost advantages," Sun said, noting, however, that AI pricing, particularly in China's market, is highly fluid.

Baidu's latest models have been made free-to-use for individual users. Previously, users had paid a monthly subscription to access the company's latest Ernie models. 

The company also announced last month that s it would make its next-generation AI model Ernie open-source from June 30, according to Reuters. This represents a change from Baidu's prior strategy of focusing on proprietary models. 

"By open-sourcing its models, Baidu seeks to once again position its technology as an industry standard, strengthening its influence in the AI community and expand its market share," said Sun.

Correction: This article has been updated to state that Baidu's new AI models are free to use.