Investors have been experiencing a challenging period in Baidu ( BIDU 1.46% ) Following their peak of $340 in 2021, shares of the Chinese search engine have consistently declined. Over the past 12 months, this downturn has been particularly concerning, especially as many artificial intelligence (AI) stocks have seen positive trends. Nvidia and Palantir achieved significant success, Baidu’s stock has decreased by 38%.
Baidu’s lackluster stock performance has drawn in bargain hunters, myself among them, eager for a good deal. After examining the company, here’s what I’ve discovered.
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Baidu’s primary operations continue to generate significant profits.
Baidu serves as a prime illustration of how a high-growth The company reached a more developed stage and started to expand at a a more gradual and unpredictable rhythm In its early years, it was essentially the go-to search engine in China, particularly following the decline of its primary rival. Alphabet Google completely withdrew from the market in 2010.
However, with the rise of smartphones and social media platforms such as WeChat, the fast-changing technology environment has slowly weakened Baidu’s stronghold in the search and advertising sectors. Additionally, a number of unsuccessful investments in fields like food delivery and entertainment have further diminished investors’ trust in the company’s potential to return to rapid growth.
Although these are legitimate reasons for concern, investors should also take into account the positive aspects of Baidu’s primary operations, which include its online marketing (primarily search-related businesses) and its non-marketing division, which encompasses cloud computing and other services. This main business area experienced a 7% growth in 2023 and an additional 4% increase in the first quarter of 2024. It also produced 18.8 billion yuan ($2.7 billion) in operating profit in 2023, with an operating margin of 19%. In summary, Baidu’s core business is still robust and expanding.
Baidu’s main business boasts a large user base of 676 million, nearly encompassing half of China’s population. This enormous number of users makes Baidu’s app crucial for advertisers aiming to connect with their target audiences. This is particularly important in the highly competitive tech industry, where companies are striving to gain users’ attention and engagement.
As long as Baidu continues to satisfy its users and maintain their interest in its search engine, or if it can innovate by developing new services or features to enhance its products, it is likely to keep generating significant revenue from its primary operations.
2. AI offers Baidu a wide range of opportunities for expansion.
Investors have largely been optimistic about AI companies since 2023, which accounts for the notable rise in their stock prices. However, despite Baidu’s substantial investments in and use of AI technologies within its operations, the company has been largely overlooked by investors.
Nevertheless, they should avoid doing so, as AI has the potential to elevate Baidu to a new phase of its development. According to Statista, the AI market in China is expected to hit $34 billion in 2024 and expand to $155 billion by 2030. As a prominent figure in AI cloud services, Baidu is well-positioned to secure a significant portion of this market.
For example, Baidu introduced its ChatGPT-like platform known as ERNIE Bot. This service has already gained 200 million users, is accessed 200 million times each day, and has been adopted by 85,000 businesses. Additionally, ERNIE has begun generating revenue for Baidu. Although these achievements are remarkable, they likely represent just a small glimpse of the vast potential opportunities that lie ahead.
Baidu’s Apollo Go, an autonomous driving service, exemplifies its cutting-edge AI offerings. Initially launched as a research initiative in 2013, it has evolved into a fully functioning service. In the first quarter of 2024, Apollo Go delivered 826,000 rides, marking a 25% increase from the year before. In total, the service has given over 6 million rides to the public.
As Apollo expands the total number of rides it offers, its AI system is expected to become even more advanced, enhancing ride experiences in terms of safety, geographical reach, and affordability. Over time, robotaxis might replace traditional taxis and personal car ownership. If Apollo can keep its top position in the market, it could create significant value for Baidu and its investors.
What it signifies for investors
Baidu is a well-established technology powerhouse in China with a history of profitable operations and significant potential for growth by capitalizing on the momentum of artificial intelligence. The challenge, however, is whether the company can successfully seize the vast opportunities that lie ahead. Additionally, investors must navigate the risks associated with investing in a Chinese company, such as regulatory unpredictability and geopolitical tensions.
For individuals who can handle those risks, Baidu is a stock worth keeping an eye on.
