Investment guru Cathie Wood has recently acquired Baidu stock. Here's the question: Should you follow suit?
In the midst of the ongoing tariff trade war, Baidu, the Chinese tech giant, is emerging as a significant beneficiary. The company's stock has seen a significant surge, particularly due to import restrictions on AI chips into China.
A month ago, Baidu's stock was barely trading higher, but it has since experienced a notable growth spurt. Despite a 4% decline in revenue in the second quarter and an adjusted earnings plummet of 35%, the stock has soared 53% since last month.
Baidu's stock is currently trading for less than 13 times its trailing adjusted earnings, a price that seems cheaper than it appears. This is due to the potential for significant growth in its AI chip business, should it continue to take off.
Cathie Wood, the founder and CEO of Ark Invest, recently added to her existing stake in Baidu (NASDAQ: BIDU), a move that may indicate a belief in the company's potential for growth.
Baidu holds the distinction of having more AI-related patent applications (5,700) than any other company in China. This intellectual property advantage could prove crucial in the competitive AI market.
The rally in Baidu's stock is largely due to Chinese import restrictions on Nvidia's H20 chip and other U.S. AI solutions. Reports this week indicate that Beijing internet regulators are blocking companies from buying certain AI chips like Nvidia's China-specific RTX Pro 6000D, potentially boosting the prospects for homegrown solutions like Baidu.
Analysts predict a return to bottom-line growth for Baidu starting next year. Thomas Chong at Jefferies has even raised his target on Baidu's shares from $108 to $157, citing the golden opportunity for Baidu's AI chips.
However, it's not all smooth sailing for Baidu. Its iQIYI video streaming service is faring worse than its search engine business. Despite this, Baidu's Kunlun AI chip business is seen as a potential beneficiary of supply shortages in China due to trading restrictions with Nvidia.
Baidu's AI cloud business posted 34% year-over-year revenue growth in its latest quarter, a positive sign for the company's future in the AI sector. As of today, Baidu's stock is trading at $135.25 with a market cap of $38B.
Despite the recent surge, Baidu's stock is trading for just 9 times their profit targets for 2028 and less than 8 come 2029, suggesting that there may still be room for further growth. With the Chinese government's push for domestic solutions in AI, Baidu appears well-positioned to capitalise on this opportunity.
Read also:
- Shaping India's Economic Progression: Readying the Financial System for Tomorrow
- Conflict between Ben & Jerry's co-founder and Unilever over Gaza issues leads to resignation of co-founder
- Two farmers in Zambia take legal action against two firms with Chinese connections, alleging an ecological disaster caused by their operations.
- Deepening EU-India relations despite apprehensions regarding Moscow connections
