Mitchell Martan
Investment Researcher for The Long Investor, Economics/Finance Background
Baidu is far too cheap at a $47B market cap once its parts are valued separately. Its Kunlunxin chip unit is eyeing a US$14.7B valuation in a Hong Kong IPO, and Baidu also has core search and advertising, AI cloud and ERNIE, Apollo autonomous driving, intelligent devices, an iQIYI stake and net cash and investments, each of which is or could be massive on its own. x.com
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.com
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.com
Baidu is losing Chinese search to Doubao and Xiaohongshu, which are now the default when people search. Baidu hasn't been a verb for a while. If this continues, it is basically headed to zero in four to five years, so exiting now is the better choice. x.com x.com
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.com
Alibaba and Baidu stand to benefit because China will not slow its AI development even if the US slows its own. x.com
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.com
Baidu is severely inefficiently priced below $200 and is under active institutional accumulation. x.com
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.com
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.com
Alibaba is a contrarian trade because accelerating demand for relatively cheaper compute is very underappreciated, and China's cloud market is still in its infancy versus the US. Alibaba is a consensus short as upside from closed-source AI looks illusory. x.com x.com