5. Baidu, Inc. (NASDAQ:BIDU)
Forward PE as of June 24: 7.94
Number of Hedge Fund Holders: 48
Baidu, Inc. (NASDAQ:BIDU) provides internet search services and products in China, including the Baidu App, Baidu Search, Baidu Wiki, Baidu Experience, Baidu Post, and more. The stock was part of 48 funds’ portfolios and the total stake value was $1.427 billion in the first quarter. As of March 31, Alkeon Capital Management is the biggest shareholder in the company and has a position worth $240.764 million. Baidu is the 4th best-undervalued stock to buy on our list.
Baidu (NASDAQ:BIDU) is making a transition from an internet-centric business to an AI-first business. At the group’s Q1 2024 earnings call, management highlighted its focus on improving its large language model (LLM), ERNIE. Baidu is aggressively promoting ERNIE in both its consumer (mobile ecosystem and other customer-oriented products) and business (AI cloud, autonomous driving, and robotaxi) segments to enhance user experience, increase advertiser return on investment (ROI), and enable developers to create efficient applications. Despite challenges in its legacy business, Baidu remains confident that AI will drive long-term revenue and profit growth. Baidu is building a strong ecosystem around ERNIE that aims to incorporate millions of applications developed by a diverse community of enterprise and individual developers.
In addition to LLMs, Baidu is also working on autonomous driving technology. The market for autonomous driving systems is expected to grow at a compound annual growth rate of 32% over the next 6 years and reach nearly $39 billion by 2030 (as per estimates by Fortune Business Insights). Baidu will benefit from this high-growth market as its autonomous ride-hailing service, Apollo Go, continues to gain popularity. Apollo Go offered about 826,000 rides in the first quarter, up 25% year-over-year. The service is progressing toward unit economics breakeven, meaning that each ride will generate enough revenue to cover its costs, especially in Wuhan. In Wuhan, it operates 24/7 and plans to deploy the sixth-generation Robotaxi, RT6.
According to analysts, Baidu is trading at an attractive valuation with a forward PE ratio of 7.94, compared to an industry average of 12.32. Over the last 3 three months, based on consensus estimates of 19 analysts, the company stock is a Strong Buy, and their average price target of $150 shows an upside of nearly 70%, as of June 24.
Ariel Global Fund stated the following regarding Baidu, Inc. (NASDAQ:BIDU) in its first quarter 2024 investor letter:
“Alternatively, several positions weighed on performance. China’s internet search and online community leader, Baidu, Inc. traded lower alongside Chinese equities as intensifying problems in China weighed on investor sentiment during the period. The company continues to invest heavily in Artificial Intelligence (AI) and recently launched its generative AI, Ernie Bot, aimed at rivaling Open AI’s ChatGPT. While monetization of the new technology is largely dependent on regulatory review, we think Baidu should continue to experience margin improvement with the ongoing implementation of efficiency and profitability initiatives. While some investors remain on the sidelines due to uncertainty surrounding China’s economic growth, government regulations, and the political rhetoric towards Taiwan, we remain enthusiastic about Baidu’s longer-term opportunity for revenue growth and margin expansion across internet search, cloud, autonomous driving, artificial intelligence and online video.”
