We came across a bullish thesis on Baidu, Inc. (BIDU) on The Chop Wood, Carry Water Newsletter’s Substack by Alexandru Dragut. In this article, we will summarize the bulls’ thesis on BIDU. Baidu, Inc. (BIDU)’s share was trading at $84.06 as of Nov 14th. BIDU’s trailing and forward P/E were 11.08 and 8.14 respectively according to Yahoo Finance.
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Baidu is capitalizing on its AI Cloud success to offset challenges in traditional online marketing. With a growing demand for cloud services, Baidu is well-positioned as an AI cloud provider. Baidu’s Apollo Go, its autonomous ride-hailing service in Wuhan, showcases progress in fully driverless transportation, especially with government support indicating future growth potential in this sector. Another strong point in Baidu’s AI suite is ERNIE 4.0 Turbo, an advanced tool tailored for industrial uses, which strengthens Baidu’s footprint in China’s AI market. The company’s mobile app engagement also reached a milestone, with 703 million monthly active users in Q2 2024, a 4% annual increase, which bolsters Baidu’s online marketing and monetization prospects.
Moreover, Baidu’s PaddlePaddle, an open-source AI framework, has attracted 14.7 million developers as of mid-2024, reflecting its role in fostering a vibrant developer ecosystem. The company’s financial health is further evidenced by a $1.2 billion stock buyback in 2023, signaling its commitment to shareholder value. Despite facing regulatory scrutiny, Baidu competes with giants like Alibaba and Tencent across AI, cloud, and autonomous driving, which intensifies the competitive landscape but also drives innovation. Economic pressures in China may affect advertising revenue, but Baidu’s diverse business segments provide resilience.
Baidu’s R&D investments, essential for advancing in AI and autonomous technologies, entail some financial risk, especially if autonomous driving does not achieve broad adoption. In its Q2 2024 earnings report, Baidu posted flat revenues of RMB 33.9 billion ($4.67 billion), steadying despite a decline in marketing revenue due to consistent growth in AI and cloud operations. Operating income rose by 8% to RMB 5.9 billion ($818 million) from the previous quarter, demonstrating effective cost management. Strong cash reserves of over $22 billion support Baidu’s innovation while maintaining shareholder returns and offering financial flexibility amid economic challenges.
Free cash flow reached RMB 6.3 billion ($862 million) in Q2 2024, supporting internal growth, and selling, general, and administrative expenses decreased by 9% year-over-year, highlighting strong cost control. Baidu’s P/E ratio of around 11x suggests it is undervalued relative to its peers, likely reflecting market skepticism around Chinese tech companies. Nonetheless, Baidu’s diverse growth drivers in AI, cloud, and autonomous technologies make it a compelling investment. With expected annual free cash flow of approximately $3 billion and a 10% discount rate, Baidu’s value could potentially double, positioning it as a key player in China’s digital landscape.
Baidu, Inc. (BIDU) is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 42 hedge fund portfolios held BIDU at the end of the second quarter which was 48 in the previous quarter. While we acknowledge the risk and potential of BIDU as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising and that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.