The Cheapest AI Leader in the World? Meet Baidu

Over the past few bull market cycles, tech stocks have outperformed stocks. The reasoning is simple: as a whole, tech stocks create the most innovative and fastest-growing products on Wall Street, and thus, garner the highest valuations.  Three of the hottest and most up-and-coming industries on Wall Street are AI large language models (LLMs) like OpenAI’s “ChatGPT”, the AI compute ecosystem like Nvidia (NVDA) offers, and the burgeoning robotaxi business like Tesla (TSLA) and others are rolling out. What if there were a company that was a leader in the of each of these verticals, plus has its country’s equivalent of Alphabet’s (GOOGL) ad and search business?

Baidu Company Overview

The Zacks Rank #3 (Hold) stock I am discussing is Baidu (BIDU). Baidu, often dubbed the “Google of China,” owns roughly three-quarters of the massive Chinese search engine market. However, like its US counterpart, Baidu has diversified its business into several tech areas, including video, ads, cloud, AI, and more.  Though Baidu remains reliant on ad revenue for the lion’s share of its revenue, its expansion into new, high-growth tech verticals like AI should excite investors.

Baidu: The Chinese AI Leader

Nvidia CEO Jensen Huang is by far the most followed voice regarding the future of artificial intelligence. This week, Huang had to clarify his comments suggesting that China will win the AI race. Though China is currently barred from buying Nvidia’s most powerful AI chip, “Blackwell”, any way one spins it, the country is a formidable competitor. China is presently lapping the United States in energy generation, a necessary ingredient for powering data centers that train AI models. Additionally, estimates suggest that about 50% of AI researchers reside in China.

Below is a breakdown of Baidu’s AI businesses:

·       ERNIE: Baidu’s version of ChatGPT is called ERNIE. ERNIE allows users to conduct chat queries, code, and more. A key advantage Baidu has over its competitors is that it is government-approved – a valuable trait in a big government country such as China.

·       Baidu AI Cloud: Baidu has shifted its cloud business from a traditional offering to an AI-centric one. AI-enabled cloud enables the company to achieve far higher profit margins. Additionally, enterprises are more likely to choose ERNIE as their preferred AI system because it integrates easily with Baidu’s cloud platform.

·       Ad Optimization: Though search is Baidu’s legacy business, the company is leveraging its in-house AI to optimize its advertising and offer more well-targeted ads.

·       Apollo Go: Baidu provides software, mapping, and autonomous vehicle technology to several companies. Currently, Baidu boasts the world’s largest robotaxi fleet, with plans to aggressively expand internationally.

Beyond the areas mentioned, Baidu has integrated its AI technology into smart devices such as smart speakers. Baidu has a massive edge over its competitors because it enjoys an existing ecosystem and preferred access to government contracts. Additionally, because of China’s closed market, Baidu does not have to worry about foreign competition from companies like OpenAI.

Baidu’s Earnings Momentum

Baidu is benefiting from the combination of a rebounding Chinese economy, a recently agreed-upon trade deal with the United States, and, most importantly, a burgeoning AI economy in the high-tech land of China. As a result, Baidu has surpassed Zacks Consensus Earnings Estimates by an average of 21.98% over the past four quarters.

Baidu is a GARP Play

Unlike many US AI stocks, Baidu’s valuation is dirt-cheap at 13.44x.  With Wall Street expecting annual earnings to jump 19.01% in 2026, BIDU is transforming into a classic growth-at-a-reasonable-price (GARP) play.

BIDU Pullback Offers Attractive Risk/Reward Area

After an explosive move from ~$90 to $150, BIDU shares are retreating to the 10-week moving average for the first time in 2025. Often, the first pullback to the rising 10-week moving average after an explosive breakout offers fantastic reward-to-risk for investors.

Bottom Line

Baidu is quietly positioning itself as one of the most comprehensive AI platforms in the world, combining its dominant search business, LLM, AI-centric cloud infrastructure, and the largest robotaxi fleet on the planet.

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This article originally published on Zacks Investment Research (zacks.com).

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