Baidu Inc. (BIDU) shares climbed Tuesday, and the company gave investors two compelling reasons to feel optimistic about its AI ambitions.

The 200 Million User Milestone

First up: Baidu's Ernie AI assistant just crossed 200 million monthly active users, a milestone that puts the Chinese tech giant squarely in the conversation about who's winning the AI race in China. The company hasn't been sitting around waiting for users to discover Ernie on their own. Instead, it's embedded the AI assistant directly into its core search app and personal computers, essentially meeting users where they already are.

But the distribution strategy goes beyond Baidu's own properties. The company has connected Ernie to popular platforms including JD.com Inc (JD), Meituan (MPNGY), and Trip.com Group Limited (TCOM). This means users can book flights, order food, and get health or legal information all through the AI assistant.

According to the Wall Street Journal, which cited sources familiar with the matter, users can generate images and videos, write summaries, and even choose between different AI models, including DeepSeek or Baidu's own Ernie model. The assistant also integrates with Baidu Maps and Baidu Health, creating a comprehensive ecosystem.

This growth comes as competition heats up. ByteDance, Alibaba Group Holding Limited (BABA), and Tencent Holding Ltd (TCEHY) are all ramping up their AI investments, making the user count achievement particularly notable.

Unlocking Value Through the Chip Business

The second catalyst: Baidu is moving forward with plans for a Hong Kong IPO of Kunlunxin, its AI chip unit. The company has already hired major banks to work on a listing that could raise up to $2 billion, though the final size is still under discussion.

Baidu framed the spinoff as a strategic move that will spotlight Kunlunxin's AI chip business, expand funding options, and improve accountability. Importantly, the company plans to retain majority ownership, so this isn't about abandoning the chip business but rather unlocking its value while maintaining control.

Analysts see the move as both strategic and necessary. China is actively seeking domestic alternatives to Nvidia Corp (NVDA) amid ongoing export restrictions, and Kunlunxin is positioned to fill that gap. Analysts expect the chips to play an increasingly important role in data centers and telecom networks.

JPMorgan has put some impressive numbers behind this thesis, projecting Baidu's chip revenue to grow sixfold by 2026. The bank values Kunlunxin as a significant standalone AI hardware business, which explains why a $2 billion IPO is even on the table.

The combination of surging AI assistant adoption and progress on monetizing the chip business gave investors plenty to get excited about. Baidu shares were up 3.38% at $154.74 at last check Tuesday.