IQ - Baidu: Nearly 40% Undervalued But Carries Significant Risks

2024-03-12 11:36:54 ET

Summary

• Baidu's market cap appears to ignore earnings growth prospects in China's nascent AI space in which Baidu is among the leaders.
• Earnings could grow by as much as 50% based on conservative assumptions.
• Risks from limited access to leading chips, and the possibility of AI investments not delivering anticipated profits could limit financial performance which has already been unexciting over the past decade.

Baidu ( BIDU ) ( BAIDF ) looks undervalued based on earnings growth prospects for key business segments (i.e., namely their core advertising business and iQIYI as well as new growth businesses including cloud, ERNIE, and driverless ride hailing) which suggests the market appears to be ignoring long-term growth opportunities in China's AI space which Baidu is well positioned to capitalize on. Significant risks, however, mean investing in Baidu may be a buy only for investors with a high-risk appetite....

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