Story Stocks^®

Baidu (BIDU) is surging after the company announced a proposed spin-off and separate listing of its AI chip subsidiary, Kunlunxin, on the Main Board of the Hong Kong Stock Exchange. The stock is rallying as investors cheer the move to unlock the hidden value of BIDU's high-growth hardware arm, looking past broader concerns about the legacy search business.

• Kunlunxin specializes in designing high-performance AI chips for data centers and cloud computing, serving as a critical hardware foundation for BIDU’s ERNIE large language models. While it originally operated as an internal unit, Kunlunxin has successfully expanded to external customers, recently securing a major order from China Mobile.
• The subsidiary is increasingly viewed as a viable domestic alternative to NVIDIA (NVDA) in China, particularly as U.S. export restrictions tighten. The spin-off aligns with Beijing's strategic push for semiconductor self-reliance, positioning Kunlunxin to capture significant market share within China’s domestic "compute-sovereignty" ecosystem.
• Recent private funding rounds valued Kunlunxin at approximately RMB 21 bln, though analysts suggest its standalone valuation on the HKSE could exceed RMB 23 bln ($3.2 bln) due to the scarcity of pure-play AI chip assets in the region.
• Kunlunxin has been a primary engine for BIDU’s AI Cloud business, which is successfully offsetting a slowing legacy advertising market. In 3Q25, while Baidu Core revenue fell 7% yr/yr, Non-Online Marketing revenue jumped 21% yr/yr, driven by a 50% surge in AI-powered business revenue to RMB 10.0 bln.
• The strategic rationale for the spin-off includes creating a standalone financing channel to fund the capital-intensive R&D required for next-generation 7nm and 5nm chipsets. It also allows BIDU to better align management incentives with the subsidiary's performance while retaining a controlling interest in its most vital supply chain partner.

Briefing.com Analyst Insight:

BIDU’s decision to spin off Kunlunxin is a savvy "sum-of-the-parts" play that forces the market to re-evaluate the company’s AI hardware credentials. For too long, BIDU’s cutting-edge chip design capabilities have been buried within its contracting legacy search business. By listing Kunlunxin in Hong Kong, BIDU is effectively monetizing the "NVIDIA of China" narrative at a time when domestic demand for non-U.S. silicon is at an all-time high. While the 7% decline in Q3 Core revenue remains a concern, the 50% growth in AI-powered revenue -- supported by Kunlunxin’s P-series chips -- proves that BIDU’s pivot is gaining real traction. The spin-off provides the financial oxygen Kunlunxin needs to scale without weighing on BIDU’s consolidated margins. However, with the stock’s huge jump, much of the initial optimism may be priced in. We would wait for regulatory clarity on the IPO timeline before significantly adding to positions, though the long-term strategic benefits of this carve-out are undeniable.