Chinese Tech Stocks Surge, Baidu Struggles Amid AI Growth

Baidu's stock struggles as Chinese tech leads AI growth. Major players gain momentum, yet Baidu's advertising revenue declines highlight ongoing challenges.

Date: 27-02-2025

AI Rating: 4

Earnings and Revenue Overview: Baidu's stock has faced significant declines, dropping over 70% from its 2021 highs. This downturn stems from a weaker-than-expected economic rebound in China, highlighted by a 7% year-over-year decline in online marketing revenue, which stood at 17.9 billion yuan (~$2.5 billion) for Q4 2024. The company anticipates a turnaround in search advertising revenue to occur only in the second half of 2025, indicating persistent headwinds affecting overall revenue growth.

AI and Cloud Growth Potential: Despite challenges in its core advertising business, Baidu's AI cloud division has shown positive momentum with a 26% year-over-year revenue growth in Q4. This growth is bolstered by Baidu's investments in AI technologies like Ernie Bot and self-driving tech, with the Ernie AI model recording an impressive 1.65 billion daily API calls and a 178% increase in external usage quarter-over-quarter.

Competition: However, Baidu's future trajectory may be complicated by increased competition from other major Chinese technology firms such as Alibaba and Tencent, which are also developing competing AI models. This competitive landscape could impact Baidu's search engine market share as it seeks to integrate more AI into its systems.

Valuation and Market Considerations: Currently valued at around $87 per share, Baidu's pricing appears reasonable as it trades under 9 times consensus 2025 earnings. Notably, Baidu's cash holdings exceed $11 billion, representing approximately one-third of its market cap. This substantial cash position allows Baidu a buffer while navigating ongoing revenue challenges and enables potential for recovery once economic conditions improve.

In summary, while Baidu is positioned within a thriving AI sector, its reliance on digital advertising revenue faces significant pressure. Moving forward, successful monetization strategies and navigating market competition will be critical for Baidu to regain investor confidence.

Stocks: BABA BIDU Tencent