Core Viewpoint - Volcano Engine, as a latecomer in the AI and cloud computing sector, is leveraging its rapid iteration of the Doubao model and full-stack AI cloud-native capabilities to accelerate its breakthrough in the market [1][2]. Group 1: Market Position and Competitive Advantage - Volcano Engine's ambition extends beyond just tools; it aims to dominate the AI era's core battlefield, which is the Agent [2]. - The company has achieved a significant market share of 46.4% in the large model service market, far exceeding its competitors [3]. - The scale advantage is highlighted by its internal operations for Douyin and Toutiao, making it one of China's largest cloud service providers, thus reducing costs and offering high-cost performance multi-cloud services [2][3]. Group 2: Technology and Product Development - Volcano Engine emphasizes a "public cloud first" and "AI first" strategy, learning from competitors to avoid pitfalls [4]. - The company is innovating in cost reduction through technology, optimizing existing resources, and enhancing AI service pricing [5]. - It aims to lower the technical barriers for small and medium enterprises by optimizing models and resource scheduling, allowing even small startups to experiment with AI at low costs [6]. Group 3: Client Services and Digital Transformation - Volcano Engine focuses on providing leading products and "accompanying services" to assist B-end clients in their digital transformation [7]. - The company collaborates with clients to co-create solutions, such as hosting AI workshops and exploring AI applications in various industries [7]. Group 4: Ecosystem Development and Future Goals - The company is forming industry alliances and incubating innovative enterprises to promote the growth of AI services in China [8]. - Future goals include deepening collaborations in retail and finance sectors and fostering more AI-first enterprises to build a mutually beneficial ecosystem [8]. Group 5: Industry Trends and Future Outlook - The industry is transitioning from PC and mobile internet to the AI era, with a shift in development paradigms towards intelligent agents [10]. - Volcano Engine is positioned as an "AI cloud," focusing on AI-native technologies and leveraging its internal service experience to assist enterprises in their AI transformation [10]. - The demand for computing power remains strong, with a focus on optimizing model efficiency and enhancing the value of AI rather than merely increasing computing scale [12].

Investment Rating - The report maintains a "Buy" rating for Baidu (BIDU US) with a target price of 111.00, indicating a potential upside of 8.5% from the closing price of 102.27 [11]. Core Insights - Baidu's Wenxin large model 4.5 and X1 have been released, showcasing significant advancements in multi-modal capabilities and outperforming competitors like GPT 4.5 and DeepSeek-V3 in various benchmark tests [4][5]. - The daily API call volume for Wenxin large model is projected to reach 1.65 billion by December 2024, a 33-fold increase from 50 million in the same period last year [5]. - The report highlights that Baidu Cloud's revenue is expected to maintain a growth trend, with a year-on-year increase of 20% anticipated in 2025, driven by the updates and open-source strategy of the Wenxin models [5]. Summary by Sections Product Development - Wenxin 4.5 features native multi-modal capabilities, significantly enhancing language understanding, generation, logic, and memory, with improvements in handling mixed data types such as text, images, and audio [2]. - Key technological upgrades include FlashMask dynamic attention masks for better long-text processing, multi-modal heterogeneous expert expansion to balance gradient contributions, and large-scale data construction based on knowledge points to enhance model knowledge density [2]. Cost Advantage - The API call pricing for Wenxin 4.5 is notably low, with input costs at 0.004 CNY per 1,000 tokens and output costs at 0.016 CNY per 1,000 tokens, which is less than 1% of GPT 4.5's pricing [2][7]. Market Performance - Following the release of Wenxin 4.5 and X1, Baidu's stock price increased by 13% on March 18, indicating positive market reception and the emerging value of AI cloud services as a second growth curve for the company [5].