Cashing in on China's Internet Crown Jewel: Why Analysts are Bullish on Baidu's Generative-AI Future

  • Benchmark analyst Fawne Jiang reiterates Baidu Inc BIDU with a Buy and a $210 price target. BIDU delivered a beat and raise quarter
  • With a sizable exposure to offline-driven verticals on top of a diversified SME merchant base, ad recovery turned out more robust than expected. 
  • More importantly, a big surprise out of the quarter was that the AI cloud turned profitable. 
  • Jiang finds it impressive that the cloud can quickly turn profitable in just a few quarters since the company pivoted towards efficiency improvement. 
  • With reaccelerated ad growth and sustained cloud profitability, the analyst anticipates a significant upward revision in the FY23 margin. 
  • The analyst views BIDU shares as uniquely positioned and a top pick considering 1) its strong net cash balance, 2) strong cash generation, 3) a fundamental ad beneficiary on reopening, and 4) margin upside/earning upward revision potential. 
  • Mizuho analyst James Lee reiterates Baidu with a Buy and a $170 price target.
  • Baidu's core operating income came in well ahead of consensus due to the upside in ad recovery and cloud reaching profitability. Lee expects a rebound in both segments. 
  • On Generative-AI, the product sets are ready with enterprise clients running early testing as the industry waits for the government review process before the commercial launch. 
  • Lee believes the review process is short-term and consistent with existing policies and remains confident in Baidu's position in Gen AI, given its first-to-market advantage. The analyst maintains that Baidu is a top pick for China Internet.
  • Price Action: BIDU shares traded lower by 2.45% at $129.43 on the last check Wednesday.
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