3 Reasons Baidu Could Be the Dark Horse of Global AI

Although not a household name in the United States, internet giant Baidu Inc. (NASDAQ: BIDU) is massively popular in China, where its legacy search business represents a majority of all internet searches in the country. U.S. investors unfamiliar with the developments in Baidu's fast-growing AI and cloud business should take the time to get to know the firm.

To be sure, Baidu's significant net loss in the latest quarter might deter some investors, although its massive cash stockpile of approximately 296.4 billion yuan ($41.6 billion) may help ease investor concerns. With 17 out of 24 Wall Street analysts advocating for BIDU shares as a Buy, and the possibility of an additional 22% or more in upside potential on top of this year's 44% rally, Baidu is quickly becoming the AI stock to beat. Below, we look at three reasons it is worth a look for investors focused on the AI race.

Baidu's AI Momentum Is Dominant

Baidu's AI offerings—including cloud-based tools, AI-native monetization products in the company's mobile business, and a variety of agents and digital human products—have gained revenue at a rapid rate. In the latest quarter, AI-based businesses in Baidu's lineup saw revenue increase by approximately 50% year-over-year (YOY) to 10 million yuan (approximately $1.4 million).

While many AI companies in the United States have sought to convert promising technology into real-world revenue, Baidu seems to have unlocked a practical means of doing so. The company's mobility-as-a-service (MaaS) product, Qianfan, is now agent-centric and is experiencing continued growth. Baidu's AI infrastructure and platform services products under the AI Cloud Infra banner saw 33% YOY revenue gains and a whopping 128% improvement in subscription-based revenue from AI accelerator infrastructure, as well.

Baidu's AI products have so far proven sticky when it comes to subscriber growth, and investors might expect the company to continue to deliver on revenue performance for the above AI tools and others as well as Baidu continues to expand its offerings. Certainly, Baidu's work in transforming its legacy search business into an AI-ready, revenue-generating new core offering is ongoing, but the results so far are promising—despite an overall revenue slowdown and losses in this segment.

Transformation of Legacy Search Business Is Ongoing and Successful

Baidu, often called the "Chinese Google," built its reputation in internet search but has seen its core business slow in recent months. It’s frequently compared to Alphabet (NASDAQ: GOOGL), Google’s parent company. The company's legacy search business has contracted, with overall revenue of 24.7 billion yuan (about $3.5 billion) for the last quarter, down 7% YOY. A slowdown in online marketing is mostly to blame, as Baidu's Core segment saw an operating loss of 15.0 billion yuan ($2.1 billion) and an operating loss margin.

Normally, a development like this in a company's primary business would be a tremendous red flag for many investors. However, Baidu's non-online market revenue—representing its AI cloud business, for one—experienced a revenue surge of 21% YOY over the same period to 9.3 billion yuan ($1.3 billion).

The company appears successful so far in its pivot from traditional ad sales to AI-based revenue through its search function. In the month of October alone, for example, Baidu said that some 70% of mobile search result pages contained AI-generated content, helping to reach 708 million monthly active users on its app.

Autonomous Ride-Hailing Could Be the Growth Business of the Future

Apollo Go is Baidu's autonomous ride-hailing service, utilizing AI to provide more than 3 million driverless taxi rides in the third quarter alone. YOY growth in this business was an astonishing 212%, with Apollo Go now having delivered more than 17 million driverless rides in 22 cities.

Driverless taxi services have yet to take off in a similar way throughout most of the United States. Waymo, among the largest providers of these services domestically, has a smaller footprint than Apollo Go in part because of significant regulatory hurdles that the industry still has to navigate.

Meanwhile, Baidu is also quickly expanding its Apollo Go business internationally, positioning itself to become a dominant name both within and outside of China. The company specifically pointed to expansion efforts in Switzerland, the United Arab Emirates, and Hong Kong in the third quarter.

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The article "3 Reasons Baidu Could Be the Dark Horse of Global AI" first appeared on MarketBeat.