Baidu (NASDAQ: BIDU) Powers To 2 Year Highs - Get Excited

As if undoing all of COVID’s Q1 damage and getting above their pre-pandemic highs wasn’t enough, shares of Baidu (NASDAQ: BIDU) have popped 40% in the past two weeks to get to multi-year highs. Shares of the $63 billion internet search giant from China are back trading at December 2018 levels and there’s every reason to think they’ll carry this momentum with them in 2021.

There’s been a run of good news in recent weeks that has fuelled the rally and is sure to keep the bulls happy for a while yet. In November, their Q3 earnings report came in marginally ahead of expectations but crucially posted year on year revenue growth. As CEO Robin Li pointed out at the time, "our revenue growth turned positive in the third quarter with many advertising verticals turning around, putting Baidu in a good position to further benefit from a recovery in the Chinese economy. Our new AI businesses saw healthy growth in the third quarter, particularly from cloud, where we are differentiating with AI solutions." Non-operating income more than doubled in the same report and though shares fell in the days after the report, the dip was quickly gobbled up by savvy investors.

Fresh Catalysts

Then about a week ago management announced a 50% increase in their share repurchase program, pushing the goal aggregate value from $3b to $4.5b. A move like this is often seen as a super bullish signal from a company’s leadership, and tells investors that they think shares are undervalued at current prices.

But the big pop came yesterday, on the back of reports that Baidu had held talks with Chinese automakers about the possibility of producing electric vehicles. They already dabble in the underlying technology used by some manufacturers through their standalone business unit, Apollo. However, these talks are said to have been around the possibility of Baidu actually taking on a contract manufacturing role or launching a venture with an existing automaker.

One only has to look at how shares of Tesla (NASDAQ: TSLA), NIO (NYSE: NIO), and Nikola (NASDAQ: NKLA) have done this year to get a sense of how Wall Street feels about the electric vehicle market. Few industries have attracted as much hype and the news opens up Baidu to a whole range of fresh clean energy and innovation focused capital.

Technical Breakout

From a technical perspective, this means shares have now broken out of the tightening pennant they’d been forming, in what looks like a blow-off move. The stock’s RSI is close to 90 indicating overbought conditions so investors thinking about getting involved should be conscious of a short-term pullback. But overall, this is very bullish action from a Chinese giant that has lagged behind its e-commerce peers like JD.com (NASDAQ: JD) and Alibaba (NYSE: BABA) for much of the year.

In fact, yesterday’s move in Baidu means their stock is now ahead of JD on the year as the two e-commerce giants dip on concerns over Chinese antitrust investigations. At $180, shares are just above where they spent much of 2016, 2017, and the first half of 2019 so the bulls will be looking for some consolidation along here to make it the new normal. The last time they broke out north of $180 shares didn’t stop until they’d printed all time highs as they came within touching distance of $300. We’re a bit aways from there right now but the fundamentals drivers that would fuel that kind of a rally are starting to come into place.