Biotech2k
Biotech Investor, AI-Driven Drug Discovery
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
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 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.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
Alphabet's earnings growth makes its valuation look attractive. It trades at 21x forward earnings and a 0.47 PEG while EPS grows 34% year over year; shares are down almost 9% year to date. Search still grows 12% and Cloud grows 103%, undercutting the concern that Search will sink the business. x.com x.comÂ
Baidu is severely inefficiently priced below $200 and is under active institutional accumulation. 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
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
Alphabet's Cloud profits offset some Search risk, but AI infrastructure may consume the gains. Search grew 12% versus 17% in Q2 despite five-year-high query growth; currency and comparisons also mattered. Cloud profit reached $11.1B, but TPU sales may alter margins. Operating cash lagged capex and shares were issued. The stock looks interesting, not obviously cheap; over two to four reports, Search monetization and Cloud margins must hold and cash flow must outpace capex without more dilution. … Show more
Alibaba and Baidu are winning trades as highly cash-generative value plays, not a return to hyper-growth. With domestic tech capex matured, both are aggressively retiring shares through large buybacks and paying robust dividends, so they are being repriced like value utilities rather than high-beta tech. Hated sentiment creates asymmetric risk-reward, but expecting Alibaba to triple to $300 on old growth multiples is a trap. x.comÂ
