Remember when Baidu was the "B" in China's legendary "BAT" tech triumvirate alongside Alibaba and Tencent? That feels like ancient internet history now. While Tencent and Alibaba held onto their crown jewel status, Baidu got overtaken by younger, hungrier tech companies like Xiaomi, Meituan, and JD.com. The acronym stuck around, but the relevance didn't.

Founder Robin Li wasn't about to accept irrelevance quietly. He's been pushing hard to reinvent Baidu Inc. (BIDU) as an AI powerhouse, betting big on initiatives like Apollo autonomous driving. The problem? Until recently, investors weren't buying it, and Baidu's stock languished.

Then came December, and suddenly things got interesting.

The Chip Spinoff That Turned Heads

A Reuters report surfaced saying Baidu planned to spin off and separately list Kunlunxin (Beijing) Technology Co. Ltd., its chip-making division. The market responded immediately, with shares jumping nearly 6% that day and adding more than $2 billion to Baidu's market value. The company later walked back the certainty a bit, clarifying it's "assessing" a potential spinoff with no guarantees. But the excitement was already baked in.

So what makes Kunlunxin worth all this fuss? The credentials are actually pretty solid. Kunlunxin started life as Baidu's in-house intelligent chip and architecture department way back in 2011. The company unveiled it publicly in 2018 before spinning it off as an independent entity three years later, with Baidu's chief chip architect Ouyang Jian taking the CEO role. Its first funding round valued the unit at 13 billion yuan ($1.84 billion), which equals nearly 5% of Baidu's current $40 billion market cap.

The chip development world moves fast, and Kunlunxin has kept pace. After launching its first-generation chip in 2021, it rolled out a second generation just two years later. Those chips powered subsequent releases of its K100 accelerator card and RH800 server. This year, the company debuted a third-generation P800 chip.

Closing In on Nvidia (Sort Of)

Thanks to Baidu's technical resources and its own R&D efforts, Kunlunxin has posted some impressive sales growth. According to IDC, the company ranked second in sales of data center AI accelerator cards in China last year, shipping nearly 70,000 units. Now, before you get too excited, that "second place" finish came a distant second to Nvidia, which shipped over 1.9 million units. But second is still second.

Kunlunxin isn't just supplying chips to its parent company, either. It's generating meaningful revenue from outside customers, including a 1 billion yuan order from China Mobile in August. Reuters reported that Kunlunxin brought in 2 billion yuan in revenue last year while posting a net loss of 200 million yuan. But here's where it gets interesting: the company is projected to generate 3.5 billion yuan in revenue this year and potentially break even, according to investor materials cited in the Reuters report. Guosen Securities thinks revenue could reach an even higher 5 billion yuan this year and crack 10 billion yuan next year.

That kind of growth trajectory would be a welcome injection of energy into Baidu's financials, which have been looking rough lately. The company's most recent report showed third-quarter revenue fell 7% year-over-year and 4.7% quarter-over-quarter to 31.17 billion yuan. Long-term asset impairments pushed Baidu into the red with a net loss of 11.2 billion yuan. Even stripping out those charges, profit of 2.6 billion yuan was down 66% from 7.6 billion yuan a year earlier.

The core advertising and marketing business fell 7% year-over-year to 24.7 billion yuan, with online marketing revenue dropping an even steeper 18% to 15.3 billion yuan. Non-online marketing sales performed better, climbing 21% to 9.3 billion yuan, while revenue from iQiyi, Baidu's online video unit, declined 8% to 6.7 billion yuan.

China's Chip Mania Creates Opportunity

Compared to those declining numbers from Baidu's core business, Kunlunxin's growth looks downright exciting. U.S. technology restrictions and chip sanctions have prompted Beijing to throw nonstop support behind domestic chip R&D, both through policy backing and direct financial support. That's helped catalyze an entire industry.

The feeding frenzy has created euphoria among investors, particularly for AI-related chip plays. Cambricon sports a market cap exceeding 500 billion yuan. And Moore Threads, despite losing money, leveraged its positioning as "China's answer to Nvidia" to achieve remarkable gains in its Shanghai debut earlier this month. The stock rose more than fivefold to 600 yuan from its 114.28 yuan IPO price on the first trading day, valuing it at 300 billion yuan and delivering windfall profits to lucky IPO shareholders.

Cambricon's steady gains and Moore Threads' explosive rally reflect the wild investor appetite for chip stocks, a sentiment that shows no signs of cooling off. With Baidu's formidable resources and technical support behind it, plus surging revenue and approaching profitability, Kunlunxin could generate similar excitement if it ultimately lists. That could deliver the shot in the arm Baidu's stock desperately needs.

Apollo Go Gains Momentum

Beyond Kunlunxin, Baidu's higher-profile Apollo Go autonomous ride-hailing unit is also showing progress after years of development. Robin Li recently declared that self-driving technology has "crossed that critical threshold."

The threshold Li is talking about is safety, the key factor holding back broader acceptance of autonomous vehicles. Apollo Go claims it averages one airbag deployment incident per 10.14 million kilometers, which beats the human driving average. The service now operates in 22 cities globally and handles over 250,000 weekly orders. It has logged more than 140 million kilometers in fully driverless mode and completed over 17 million rides, gradually advancing toward commercialization.

Apollo Go is still burning cash, but it could be another powerful engine to finally bring some excitement back to Baidu's stock. If both Kunlunxin and Apollo Go deliver on their promise, we might actually see a legitimate revival of the "BAT" moniker, with Baidu reclaiming its place alongside Tencent and Alibaba at the top of China's internet hierarchy.