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Baidu Rises 10% in a Month: How Should Investors Play the Stock?
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Baidu, Inc. (BIDU - Free Report) shares have gained 10% in a month, outperforming the broader Zacks Computer & Technology sector's return of 0.7% and the S&P 500 index’s rise of 1.8%. The company has also outpaced the Zacks Internet-Services industry which lost 2% in the same time frame.
China’s search giant has been enjoying some short-term gains of late, thanks to its deepening focus on its Artificial Intelligence (AI) drive and growing generative AI (GenAI) capabilities. Solid momentum in its AI Cloud business is turning investors optimistic about the stock.
In the second quarter of 2024, AI Cloud revenues surged 14% year over year to RMB 5.1 billion. Baidu’s GenAI-related revenues continued its robust momentum, accounting for 9% of its AI Cloud revenues, which grew 6.9% sequentially.
One-Month Price Performance
Image Source: Zacks Investment Research
The breadth and depth of BIDU’s AI capabilities provide the differentiating foundational technologies that power all of its businesses, and this is how it has evolved from a search platform provider to a leading AI company with a strong Internet foundation.
Against this backdrop, the question that really arises in an investor’s mind is - Will momentum in Baidu’s share price continue on the AI strength? Let’s analyze.
Baidu’s AI Drive to Boost Prospects
Baidu is scaling AI to address real-world problems and generate substantial value on the back of its in-house foundation model called ERNIE.
The company is in the midst of a broad-based platform shift driven by GenAI and foundation models that are set to revolutionize every industry. BIDU is well-poised to capitalize on this opportunity on the back of its conversational AI bot namely ERNIE Bot.
Baidu recently revealed that ERNIE was able to handle about 200 million API calls daily when it was launched, and now it has exceeded 600 million or over 1 trillion tokens that are generated every day.
The company is continuously making efforts to expand its model portfolio to cater to diverse customer needs. Moreover, the diversified portfolio will allow it to optimize for performance, cost and latency while addressing customer requirements.
The launch of three lightweight ERNIE models has enabled Baidu to gain traction among enterprises and developers.
In June 2024, it introduced ERNIE 4.0 Turbo, which comes with advanced capabilities for typical use cases.
Its current lineup includes our flagship models, ERNIE 3.5 and ERNIE 4.0, the enhanced model ERNIE 4.0 Turbo and several lightweight models.
Baidu also made API cost-free of charge for three lightweight ERNIE models, ERNIE Speed, ERNIE Lite and ERNIE Tiny. The company further lowered the price of API cost for the two ERNIE flagship models, ERNIE3.5 and ERNIE 4.0. With these strategies, BIDU strives to make ERNIE widely available at affordable prices to accelerate the adoption of GenAI.
The company recently upgraded its open-source deep learning framework called PaddlePaddle to version 3.0 in order to make it compatible with its AI infrastructure and ERNIE.
Additionally, its initiative to power Baidu Search with ERNIE in order to deliver an enhanced user search experience remains a major positive. Integration of ERNIE in its search platform has helped in improvising the content quality and providing accurate and direct answers to even complex querries.
Baidu’s Momentum in Various Use Cases Drives Growth
All the above-mentioned endeavors are helping Baidu gain momentum across various sectors and use cases, which is evident from the PaddlePaddle and ERNIE developer community, which grew to 14.7 million in June 2024.
Baidu is gaining solid momentum in the healthcare industry on the back of ERNIE Speed and ModelBuilder, which help in training an industry-specific model to generate medical records automatically for doctors.
In the recruitment industry, the company is gaining traction on the heels of its ERNIE capabilities.
In the public service sector, BIDU is witnessing a solid uptake of ERNIE Speed, which helps in delivering tailored, personalized and scalable services.
Growing use cases of ERNIE bodes well for Baidu’s AI Cloud business.
Baidu’s solid momentum among AI Cloud customers is expected to boost its long-term prospects in this data-driven world where AI as a technology is becoming inevitable.
The Zacks Consensus Estimate for 2024 revenues is pegged at $19.23 billion, indicating growth of 2% year over year.
Attractive Valuation: A Silver Lining for BIDU
BIDU stock is trading at a discount with a forward 12-month Price/Earnings of 8.21X compared with the industry’s average of 20.42X. This reflects a solid opportunity for investors.
Image Source: Zacks Investment Research
Baidu’s Earnings Estimate Trending Down
Intensifying competition in the GenAI battle from the likes of Alibaba (BABA - Free Report) , Tencent (TCEHY - Free Report) , Kimi and Doubao, among others, remain concerning for Baidu’s market position.
Also, macro headwinds in the online marketing space do not bode well for BIDU. Sluggish recovery in consumer spending, due to which several advertisers are adopting a very cautious approach to their ad-spending, is ultimately impacting Baidu’s Core business negatively.
Also, increasing expenses related to AI investments do not bode well for BIDU’s margin expansion.
These concerns are dampening the company’s prospects currently.
The Zacks Consensus Estimate for 2024 earnings stands at $11.17 per share, indicating a decline of 1.9% year over year. The figure has moved downward by 1.4% over the past 30 days.
Image Source: Zacks Investment Research
Conclusion
Baidu’s expanding AI-driven model portfolio and solid momentum in the AI Cloud business indicate its upward potential and present a compelling investment opportunity. Investors who already own the stock may expect the company's growth prospects to be rewarding over the long term.
However, BIDU’s near-term prospects are dull, given the weakness in the online marketing business and stiff competition in the GenAI space. Baidu has a Growth Style Score of C, which makes the stock unattractive for growth-oriented investors.
Image: Bigstock
Baidu Rises 10% in a Month: How Should Investors Play the Stock?
Baidu, Inc. (BIDU - Free Report) shares have gained 10% in a month, outperforming the broader Zacks Computer & Technology sector's return of 0.7% and the S&P 500 index’s rise of 1.8%. The company has also outpaced the Zacks Internet-Services industry which lost 2% in the same time frame.
China’s search giant has been enjoying some short-term gains of late, thanks to its deepening focus on its Artificial Intelligence (AI) drive and growing generative AI (GenAI) capabilities. Solid momentum in its AI Cloud business is turning investors optimistic about the stock.
In the second quarter of 2024, AI Cloud revenues surged 14% year over year to RMB 5.1 billion. Baidu’s GenAI-related revenues continued its robust momentum, accounting for 9% of its AI Cloud revenues, which grew 6.9% sequentially.
One-Month Price Performance
Image Source: Zacks Investment Research
The breadth and depth of BIDU’s AI capabilities provide the differentiating foundational technologies that power all of its businesses, and this is how it has evolved from a search platform provider to a leading AI company with a strong Internet foundation.
Against this backdrop, the question that really arises in an investor’s mind is - Will momentum in Baidu’s share price continue on the AI strength? Let’s analyze.
Baidu’s AI Drive to Boost Prospects
Baidu is scaling AI to address real-world problems and generate substantial value on the back of its in-house foundation model called ERNIE.
The company is in the midst of a broad-based platform shift driven by GenAI and foundation models that are set to revolutionize every industry. BIDU is well-poised to capitalize on this opportunity on the back of its conversational AI bot namely ERNIE Bot.
Baidu recently revealed that ERNIE was able to handle about 200 million API calls daily when it was launched, and now it has exceeded 600 million or over 1 trillion tokens that are generated every day.
The company is continuously making efforts to expand its model portfolio to cater to diverse customer needs. Moreover, the diversified portfolio will allow it to optimize for performance, cost and latency while addressing customer requirements.
The launch of three lightweight ERNIE models has enabled Baidu to gain traction among enterprises and developers.
In June 2024, it introduced ERNIE 4.0 Turbo, which comes with advanced capabilities for typical use cases.
Its current lineup includes our flagship models, ERNIE 3.5 and ERNIE 4.0, the enhanced model ERNIE 4.0 Turbo and several lightweight models.
Baidu also made API cost-free of charge for three lightweight ERNIE models, ERNIE Speed, ERNIE Lite and ERNIE Tiny. The company further lowered the price of API cost for the two ERNIE flagship models, ERNIE3.5 and ERNIE 4.0. With these strategies, BIDU strives to make ERNIE widely available at affordable prices to accelerate the adoption of GenAI.
The company recently upgraded its open-source deep learning framework called PaddlePaddle to version 3.0 in order to make it compatible with its AI infrastructure and ERNIE.
Additionally, its initiative to power Baidu Search with ERNIE in order to deliver an enhanced user search experience remains a major positive. Integration of ERNIE in its search platform has helped in improvising the content quality and providing accurate and direct answers to even complex querries.
Baidu’s Momentum in Various Use Cases Drives Growth
All the above-mentioned endeavors are helping Baidu gain momentum across various sectors and use cases, which is evident from the PaddlePaddle and ERNIE developer community, which grew to 14.7 million in June 2024.
Baidu is gaining solid momentum in the healthcare industry on the back of ERNIE Speed and ModelBuilder, which help in training an industry-specific model to generate medical records automatically for doctors.
In the recruitment industry, the company is gaining traction on the heels of its ERNIE capabilities.
In the public service sector, BIDU is witnessing a solid uptake of ERNIE Speed, which helps in delivering tailored, personalized and scalable services.
Growing use cases of ERNIE bodes well for Baidu’s AI Cloud business.
Baidu’s solid momentum among AI Cloud customers is expected to boost its long-term prospects in this data-driven world where AI as a technology is becoming inevitable.
The Zacks Consensus Estimate for 2024 revenues is pegged at $19.23 billion, indicating growth of 2% year over year.
Attractive Valuation: A Silver Lining for BIDU
BIDU stock is trading at a discount with a forward 12-month Price/Earnings of 8.21X compared with the industry’s average of 20.42X. This reflects a solid opportunity for investors.
Image Source: Zacks Investment Research
Baidu’s Earnings Estimate Trending Down
Intensifying competition in the GenAI battle from the likes of Alibaba (BABA - Free Report) , Tencent (TCEHY - Free Report) , Kimi and Doubao, among others, remain concerning for Baidu’s market position.
Also, macro headwinds in the online marketing space do not bode well for BIDU. Sluggish recovery in consumer spending, due to which several advertisers are adopting a very cautious approach to their ad-spending, is ultimately impacting Baidu’s Core business negatively.
Also, increasing expenses related to AI investments do not bode well for BIDU’s margin expansion.
These concerns are dampening the company’s prospects currently.
The Zacks Consensus Estimate for 2024 earnings stands at $11.17 per share, indicating a decline of 1.9% year over year. The figure has moved downward by 1.4% over the past 30 days.
Image Source: Zacks Investment Research
Conclusion
Baidu’s expanding AI-driven model portfolio and solid momentum in the AI Cloud business indicate its upward potential and present a compelling investment opportunity. Investors who already own the stock may expect the company's growth prospects to be rewarding over the long term.
However, BIDU’s near-term prospects are dull, given the weakness in the online marketing business and stiff competition in the GenAI space. Baidu has a Growth Style Score of C, which makes the stock unattractive for growth-oriented investors.
Baidu currently has a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable entry point in the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.