Summary of Key Points
Kunlun Chip, a subsidiary incubated by Baidu, plans to go public in Hong Kong with a target valuation of $50 billion, which is 1.4 times higher than Baidu's current market value of $37 billion. Just half a year ago, its valuation was only around $3 billion, representing a 16-fold increase in just a few months. The company has introduced a unique rule where investors must purchase chips at a cost three to seven times the amount of shares they wish to acquire, yet there are still investors willing to accept this condition. Kunlun Chip's chips have been put into practical use (for example, by Tencent), but there is still a significant gap compared to leading manufacturers like Huawei's Ascend series. The $50 billion valuation essentially reflects the capital's bet on its future market potential.
I. The Contradictory Valuation: Why Is the Subsidiary Worth More Than the Parent Company?
Kunlun Chip’s valuation seems almost like the “son surpassing the father”—with Baidu’s market value at $37 billion, Kunlun Chip is aiming for a valuation of $50 billion before even going public. Even more strikingly, its valuation soared from just $21 billion (less than $3 billion) at the end of last year to 16 times that amount. This isn’t just speculative; it’s fueled by the current trend of “domestic computing power.” The supply of high-end chips from overseas is unstable, and there is a surge in demand for domestic chips from large-scale models and intelligent computing centers in China. Investors are willing to pay for the potential of domestic alternatives. However, this valuation also sets high expectations for future growth. If Kunlun Chip cannot sell enough chips or acquire additional external customers, the price may prove to be inflated.
II. The Unique Investment Rule: Buying Chips Before Purchasing Shares—What Do Investors Gain?
Kunlun Chip has set a requirement for investors: to obtain 10 million shares, they must spend an additional $70 million on purchasing chips. This might seem like an unfair term, but there are practical reasons why investors are willing to accept it:
- They Already Need Chips: Internet companies training large models and industrial capital building intelligent computing centers are in dire need of computing power chips. By allocating their procurement budget to Kunlun Chip and also acquiring shares, they get equity for free.
- Scarcity of Domestic Chips: Meituan recently used 50,000 domestic chips to train a trillion-parameter model, proving that domestic chips can handle heavy tasks. With overseas chip shortages, locking in supplies from Kunlun Chip can address immediate needs.
- Chips Are Valuable: Computing power is in high demand, so any excess chips can be resold for profit.
For Kunlun Chip, this strategy is a win-win: it secures chip orders in advance and raises funds.
III. Are Kunlun Chip’s Chips Really Useful? From Baidu’s Internal Tests to Market Sales
Kunlun Chip isn’t just a company with impressive visuals; its chips have been tested in real-world applications:
- A Strong Foundation: Baidu began developing AI chips in 2010 and released the first generation of Kunlun Chip in 2018, deploying over 20,000 units internally. Baidu’s various services, including search and large models, have been using these chips for years, helping to refine the product.
- Market-ready Products: Its current flagship product, P800, can handle models with 671 billion parameters and is compatible with mainstream frameworks like DeepSeek. Tencent has already become a customer, indicating that Kunlun Chip’s chips are practical and recognized by industry leaders.
- Not Just for Show: Meituan’s success in using domestic chips to train a trillion-parameter model demonstrates their capability for large-scale tasks, proving they are more than just niche solutions.
IV. Industry Positioning: Third in the Domestic Market, but Still Far from the Leaders
Kunlun Chip has joined the top ranks of domestic chip manufacturers, but it still lags behind leaders like Huawei’s Ascend series:
- Production Volume: IDC data shows that in 2025, Huawei’s Ascend series will account for 812,000 units, Alibaba’s Pingtouge for 265,000 units, and Kunlun Chip for only 116,000 units (tied for third place with Cambricon), which is one-seventh of Huawei’s output.
- Ecosystem Gap: AI chip success also depends on supporting software tools. While Huawei has a complete ecosystem of chips, servers, and software, Kunlun Chip relies on Baidu and its developer community, which is not yet as mature.
- Dependence on Baidu: As the controlling shareholder and major customer, Baidu’s influence on Kunlun Chip’s growth is significant. Whether it can reduce this dependency and attract more external customers like Tencent will determine its market potential.
V. The Confidence Behind the $50 Billion Valuation: Capital’s Bet on the Future
Kunlun Chip’s valuation is based on three key trends:
1. Demand for Domestic Alternatives: With unstable overseas chip supply, domestic companies are seeking alternatives, and Kunlun Chip, as a leading player, can benefit significantly.
2. Surging Demand for Computing Power: The construction of large models and intelligent computing centers continues to drive demand for chips.
3. Technological Advancement: With Baidu’s decades of experience, Kunlun Chip’s products have been tested and proven in practice, making them more reliable than startups.
However, this valuation carries risks: if Kunlun Chip fails to meet production targets, expand its customer base, or develop the next generation of chips quickly, the valuation could bubble. Overall, Kunlun Chip represents the rise of domestic computing power, but whether its high valuation is justified will depend on its ability to convert potential into actual performance.
(The translation maintains the original structure and tone, using clear language to explain the complex financial and business concepts in a way that is easy for non-experts to understand.)