Wherever you are in the world, you’ll find people ‘googling’ things on the internet; everywhere except in China, that is. China’s strict censorship laws have kept the popular search engine from infiltrating the huge Chinese market. There, Baidu (NASDAQ: BIDU) reigns supreme. The company, founded in 2000, is also responsible for artificial intelligence (AI) tech, like the kind that powers its Apollo Robotaxi service, which it launched in Beijing last year. Baidu recently announced its entry into the Electric Vehicle (EV) market and its stock surged nearly 18%. With the company branching out, is now the right time to invest in Baidu?
The bull case for Baidu
Baidu’s revenue, the main source of which is in advertising, has grown over 50% since 2015. However, the advertising well has started to dry up due to a slowing Chinese economy and the ongoing Sino-U.S. trade war. Not to be outdone, Baidu has branched into AI chipmaking and released its high-performance Kunlun Gen 1 chips into production last year with the Gen 2 due out this year. The second-generation chip is expected to have thrice the performance power of its parent, which already outperforms AI chips from Nvidia and Cambricon.
The global AI chip market, a large portion of which will be in China, is expected to be worth $72.6 billion by 2025. Baidu is in talks to launch a semiconductor subsidiary to better commercialize its chips and address the global chip shortage. This offshoot will no doubt take a big bite out of this sector, especially since the Chinese government is trying to boost the country’s independence around this crucial technology in light of the trade war.
Baidu is also branching into the EV and autonomous vehicle sector by partnering with Zhejiang Geely Holding Group. The company has proven success in this arena with its Robotaxi service, providing AI via its Apollo platform to automakers like Ford, Volkswagen, and Toyota, and its top-notch AI chips. The sector, currently in its infancy, is expected to be worth $60 billion by 2030. These strategic investments in red-hot industries are what keeps analysts raising stock-price targets on Baidu and what has had its stock price up over 44% year-to-date (YTD).
The bear case for Baidu
Baidu is a Chinese company and as such faces continued scrutiny from both investors and the U.S. government. Last month, it was part of a blacklist of companies against American investments and although that was scrapped, there’s always a concern of future intervention. Additionally, with recent fraud and accounting dishonesty reported by various Chinese companies like Luckin Coffee and TAL Education Group, investors might be cautious putting money into companies from the region.
So, should I invest in Baidu?
Baidu is putting irons into many red-hot industry fires and is a good long-term investment in my opinion. I’m not concerned about it being a Chinese company as it is a market leader in its sector and a proven entity in all its new ventures.
1. Who is the CEO of Baidu?
Robin Li, as of January 2004.
2. When did Baidu go public?
August 5, 2005.
3. What does Baidu mean?
Literally, ‘hundreds of times,’ representing a persistent search for the ideal.
A MyWallSt subscription gives you access to over 100 market-beating stock picks and the research to back them up. Our analyst team post daily insights, subscriber-only podcasts and the headlines that move the market. Get your free access now!
MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.
Contributing Writer at MyWallSt
David fell in love with the stock market in 2000 after making $30,000 overnight on Techniclone. His favorite stocks today are Netflix, Google, Amazon, and Apple as they are the market leaders in their sectors and are safe long-term investments.