Tech Fund
Engineer & Portfolio Manager, Author of Tech Investments Newsletter
Baidu should soon become a growth stock again, heavily exposed to AI through cloud, AI apps, ASICs and robotaxis. AI-powered businesses now make up 50% of revenue, and cloud is growing 30-40%. Yet the stock trades at only 13x forward earnings on Goldman's estimates, an attractive risk-reward worth adding to. Holding shares in Hong Kong guards against a possible US delisting of Chinese names. x.comÂ
Baidu's AI and cloud growth should surprise to the upside in this week's earnings because demand remains extremely strong, and the stock is still far too cheap. The same goes for Alibaba, which should bode well for Chinese tech broadly. x.comÂ
Baidu looks ready for a second leg higher as President Trump meets President Xi this week. It has built a five-year base, holds $43B of cash, grew AI Cloud 34% year over year and has a Kunlunxin AI chip spin-off coming. x.comÂ
Alibaba and Baidu stand to benefit because China will not slow its AI development even if the US slows its own. x.comÂ
Baidu trades below book value, one of the best values seen in many years, with about $40 billion of equity against a $39 billion market cap. Legacy search is declining, but the cloud, AI and robotaxi businesses are very strong, and book value is a better value metric than an easily manipulated P/E. x.com x.comÂ
Baidu looks undervalued because its $30B market value at $90 roughly equals its $30B of net cash, leaving a very valuable AI chip business for free. Morgan Stanley disagrees, downgrading it to Underweight with an $80 target, down from $130, citing weak advertising revenue and rising AI investment, and expecting core operating profit to trough in Q3. x.comÂ
Alibaba raising capital for AI after a strong quarter is a buying opportunity, especially with CEO Eddie Wu buying shares right after the raise. In June, heavy buybacks near $94.80 preceded a rally to $132. Stanley Druckenmiller starting a Baidu position, despite saying he would not invest in China under Xi, signals a bet on Chinese AI and cloud. Chinese names are cheap and underappreciated, with strong AI models, power access and robotics leadership, while the US faces data-center hurdles. … Show more
Alibaba and Baidu are a no-brainer buy because Chinese AI stocks trade at very low valuations while China is determined to race the US in AI. x.comÂ
Baidu looks cheap against its cash earnings, trading at about 10x both current and next year's cash earnings versus the roughly 20x its industry usually gets. Fair value is $192-$245, around 20x next year's cash earnings, give or take 12%, leaving the stock about 46% below the low end. This is a valuation screen based on reported earnings and revenue estimates, with no deeper fundamental work. x.comÂ
Baidu's price follows its free cash flow, so the one-off dip in March 2025 and subsequent recovery offered a great opportunity to accumulate. x.comÂ
Alibaba offers opportunity at $123 as a front-runner in China's AI buildout, particularly if its AI spending shows real returns and it proves it can compete with the US. Over $56 billion of AI and cloud investment over three years has made current free cash flow negative, like US hyperscalers. Cloud growth is expected near 45%, AI products are already 30% of external cloud revenue, and it holds $38 billion of net cash. Cloud growth, capex and guidance will drive the earnings reaction. x.comÂ
