Visitors experience the autonomous driving system of Baidu Apollo at the Shanghai Auto Show, April 19, 2021. Photo: VCG

China's Baidu Inc reported quarterly revenue on Tuesday that beat Wall Street estimates, as the company beefed up its cloud and artificial intelligence (AI) services to fend off competition in the online advertising sector.

The Beijing-based tech giant has diversified its revenue sources by expanding its cloud services and intelligent driving technology footprint as competition for digital advertising sales heats up from local internet giants Alibaba and ByteDance.

The company, which obtained a secondary listing in Hong Kong in March, said total revenue rose 25 percent to 28.13 billion yuan ($4.38 billion) in the first quarter, boosted partly by the 70 percent year-on-year growth of its non-advertising revenue, which includes the cloud and AI businesses.

The Chinese search giant said on March 15 that its AI chip unit Kunlun has completed a round of fundraising, which according to one source with direct knowledge of the matter values the business at about $2 billion.

The fundraising, which comes as the company pushes forward with AI chip design and manufacturing ambitions, was led by Chinese private equity firm CITIC Private Equity Funds Management (CPE), the source said. Other investors include IDG Capital, Legend Capital and an industry fund Oriza Hua, the person added.

"Kunlun chip business has recently completed a round of financing. We will release more information in due course," Baidu said in a statement sent to Reuters, declining to comment on the investors, fundraising amount or valuation.

Kunlun chips are currently used mostly by Baidu on smart electric vehicles and cloud computing.

Baidu is considering commercializing its AI chip design capabilities, with the aim of making the Kunlun unit a standalone company, according to the source.

Baidu also operates another chip unit called Honghu.

Analysts on average had expected revenue of 27.25 billion yuan, according to IBES data from Refinitiv.

Baidu's online ad revenue hit 16.3 billion yuan, a 27 percent increase compared with the same period a year earlier, when Baidu swung to an operating loss due to COVID-19 lockdowns.

Baidu's non-ad revenue can exceed its ad revenue within Baidu Core in the next three years, said Baidu chairman and CEO Robin Li Yanhong in a conference call. The company's ad revenue contributed around 80 percent of Baidu Core's over the quarter.

"We see a great opportunity to offer non-ad services of our own to meet the needs of our large user base," Li said.

The company's flagship mobile Baidu App accumulated 558 million monthly active users as of March. 

However, Baidu's streaming affiliate, iQIYI, saw subscribers fall by 3.1 million to 101.7 million by December, when compared with the third quarter last year.

The Netflix-like video-streaming website is facing competition from Tencent Video and Alibaba's Youku, calling for heavy investments on content to retain consumers.

Baidu's results also come amid a regulatory clampdown on China's internet giants to keep a check on the country's big techs' monopolistic practices.

US-listed shares of the company rose 3.5 percent in premarket trading. The shares had been on a tear in the first quarter amid a series of block trades tied to the meltdown of hedge fund Archegos Capital Management.