Baidu Stock Nears Pandemic Lows: Is This a Buying Opportunity?

Key Points

• Baidu is the Google of China, sharing similar infrastructures, such as offering search, cloud, and streaming video services like iQIYI, their version of YouTube. Still, the company generates only 5% of Google's revenues.
• Baidu has been producing its own Kunlun AI chips since 2018.
• Baidu stock is down 25.2% year-to-date and trades at 9.41x forward earnings.

Chinese technology stocks have been taking a tumble in 2024. A combination of geopolitical and trade tensions, macroeconomic uncertainty, and growth slowdown have been negative drivers that have caused investors to rethink the potential of these companies. Amongst the ruble, some companies are hitting valuations that are too good to pass up. Baidu Inc. NASDAQ: BIDU is widely considered the “Google” of China. It is a leader in search and streaming and a pioneer in artificial intelligence (AI), producing AI chips since 2018. Shares are trading down 25.2% year-to-date (YTD) at just 9.41x forward earnings, reaching levels not seen since the pandemic.

Baidu operates in the computer and technology sector. Its stock moves with peer Chinese technology and e-commerce stock, including Alibaba Group Holdings Ltd. NYSE: BABA, JD.com Inc. NASDAQ: JD and Tencent Holding Ltd. OTCMKTS: TCEHY.

Taking Inventory of Baidu’s Portfolio of Assets

After more than a decade of explosive hypergrowth, Baidu is experiencing normalization. But that may be nearing its conclusion. In the meantime, it is prudent to take an inventory of this internet giant’s portfolio of assets. Like Alphabet Inc. NASDAQ: GOOGL, Baidu is the undisputed leader in Chinese internet search. It was one of the first and is still the most popular. Baidu Core generates 70% of its revenues through advertising.  

Baidu's Position in the Chinese Tech Market

Baidu is a leader in cloud services, offering cloud computing, storage, and cloud-based solutions for businesses, including AI-powered software-as-a-service (SaaS), infrastructure-as-a-service (IaaS), and platform-as-a-service (PaaS). Baidu is heavily invested in innovative technology like AI and autonomous driving and has built a rich mobile ecosystem through apps like Baidu Post, Baidu App, and Haokan, as well as payment solutions. Baidu App’s monthly active users (MAUs) grew 3% in March 2024 to 676 million.

Like Google’s YouTube, Baidu’s iQIYI is its streaming entertainment service, which is comprised of original programming, user-created content, drama and variety series, sports, and documentaries. IQIYI generates the remaining 30% of Baidu's revenues through its subscription and advertising services.

Baidu Leads China’s AI Development

Baidu is one of the only companies that offers a full AI stack. Its infrastructure consists of a deep learning framework, natural language processing (NLP), speech recognition, augmented reality, computer vision, and AI chip production. It recently unveiled its latest version of generative AI (GenAI), Ernie 4.0 Turbo, which has reached over 300 million users. Ernie Bot handles over 500 million queries daily.

At its deep learning developers conference, Wave Summit, the company launched its upgraded deep learning platform, Paddle Paddle 3.0. To date, its ecosystem is used by 14.65 million developers, hosting 950,000 models and serving 370,000 institutions and enterprises.

BIDU Attempts a Market Structure Low Reversal Pattern

After 16 preceding lower low candlesticks, the daily BIDU chart formed a market structure low pattern (MSL). This pattern usually forms on a three-candlestick series comprised of a low, lower low, and higher low. The MSL buy triggers on the high of the higher low candle, the last candle of the series. The MSL buy triggers on BIDU above $90.30. The daily relative strength index (RSI) bounced through the 30-band and stalled around the 37-band. The MSL trail stop triggers below the lower low candle of the series below $85.08. Pullback support levels are at $87.27, $85.08, $78.86, and $75.75.

Baidu's Growth Prospects: Ready for a Rebound?

While Baidu is considered the Google of China, it only generates 5% of Google’s revenues. Baidu reported Q1 2024 EPS of $2.76, beating consensus estimates by 57 cents. Revenues grew 1.2% YoY to $4.4 billion, beating consensus estimates by $24.4 million. Baidu core revenues rose 4% YoY to $3.3 billion. iQIYI revenues fell 5% YoY to $1.1 billion. The company bought back $898 million in shares in the quarter under its 2023 buyback program. As of March 31, 2024, Baidu had $26.56 billion in cash, restricted cash, and short-term instruments.

Baidu Co-Founder and CEO Robin Li commented, "Baidu Core's online marketing revenue remained stable, while the end-to-end optimization of our AI technology stack continued to propel the growth of our AI Cloud revenue during the quarter.”

Li concluded, "As a new era of Gen-AI unfolds in China, foundation models like ERNIE will serve as the underlying infrastructure, infusing various facets of people's lives. We are making our ERNIE family of models increasingly affordable and efficient. This should provide Baidu with even greater opportunities ahead."

Baidu analyst ratings and price targets are at MarketBeat. The consensus analyst price target of $156.64 implies a 76.06% upside. Fourteen analysts rate shares of BIDU a Buy, and two rate them a Hold.