2023-07-28 14:32:07 ET
Summary
- Baidu, Inc.'s Apollo Go service experienced over threefold growth in Q1 2023, offering nearly 660,000 rides on open roads.
- Baidu aims to provide safe and reliable autonomous driving services to meet growing demand, with a strong track record as a major player in the industry.
- Baidu's early mover advantage in launching Ernie Bot, a competitor to ChatGPT, positions the company ahead in AI development.
- Morgan Stanley upgrades Baidu with a price target of $190, considering it the best AI play in China, with extensive search data and a whole stack of AI capabilities.
Investment Thesis
Baidu, Inc. ( BIDU ) is making remarkable progress in the autonomous driving sector, with its Apollo Go service witnessing rapid expansion. As of Q1 2023, the number of rides on open roads have tripled compared to last year, with nearly 660,000 rides provided. This success has led to Baidu obtaining more permits to offer fully driverless ride-hailing services in China.
According to a summary of a quarterly meeting of the Politburo released lately, the Communist Party's top decision-making body, presided over by President Xi Jinping, decided to conduct a "counter-cyclical" policy and primarily adhere to a responsible monetary policy and proactive fiscal policy, causing a surge in Chinese equities. Surprisingly, BIDU has outperformed the KWEB index returning 29% year to date, with the momentum showing no signs of slowing down.
Baidu's Apollo Go: Driving Towards Autonomous Glory With Threefold Growth
Baidu is making significant strides in the autonomous driving sector, with its Apollo Go service showing impressive growth. In Q1 2023, the number of rides provided on open roads increased over threefold compared to the same period last year, reaching nearly 660,000 rides. The growth has resulted in Baidu receiving more permits from the government to offer fully driverless ride-hailing services in China.
Currently, Apollo Go provides fully driverless ride-hailing services in three cities: Beijing, Wuhan, and Chongqing. The company prioritizes fleet expansion and passenger adoption in regions where it can offer fully driverless commercial operations, focusing on creating a profitable business model. Baidu's efforts in Wuhan have been particularly successful, with more than one-third of the paid rides provided by Apollo Go being in fully driverless vehicles. The company is confident that the number of rides provided by 40 driverless vehicles will continue to increase, leading to cost optimization and profitability.
Further, Baidu believes that the demand for autonomous driving services will continue to grow rapidly, and the company is dedicated to providing safe and reliable services to the public. Apollo Go remains the world's largest autonomous ride-hailing service provider, and the number of rides provided to the public continues to grow.
Baidu focuses on reducing operational costs and improving efficiency to achieve breakeven and build a sustainable business model. The major cost components for robotaxi operation are labor and hardware costs. The company is developing a fully crowded operation to reduce labor costs, allowing for driverless rides. Baidu has received approval to offer purely driverless services to the public in the Beijing Yizhuang region, demonstrating the field's progress.
On the hardware cost front, Baidu expects costs to decrease over time, particularly with the future release of new robotics models. To improve operational efficiency, Baidu is continuously automating its operational strategy and is seeing a steady increase in the average daily ride nationwide.
Notably, as of 2022, Baidu is the second-largest owner of patents in autonomous driving globally, allowing the company to deploy autonomous driving at scale thanks to its developed technology and systems, resulting from a decade of R&D efforts in this field. Therefore, with its strong track record and continuous focus on cost optimization and efficiency, Baidu aims to achieve a profitable business model for its autonomous driving services. In short, Baidu remains focused on providing safe and reliable autonomous driving services to meet the growing demand in the market.
Patent owners in autonomous driving (statista.com)
Morgan Stanley Upgrades Baidu As China's Leading AI Player
Baidu has recently been upgraded by Morgan Stanley from Equal-Weight to Overweight with a price target of $190, implying a potential upside of around 28%. Morgan Stanley considers Baidu the best AI player in China, citing several competitive advantages that position the company well in the AI market.
One of the critical reasons for the bullish outlook is Baidu's early mover advantage in launching a product closely resembling ChatGPT, which has placed the company ahead of its rivals in China. As China's AI evolution reaches an inflection point, Baidu is viewed as the best player to capture the $7.0 trillion AI internet opportunity.
Baidu became the first major Chinese tech company to introduce a competitor to ChatGPT with its language AI, Ernie Bot, based on the older Ernie 3.0 AI model. Over the past three months, Ernie Bot has been undergoing invite-only tests. Baidu referred to a test conducted by the state newspaper China Science Daily, which used AGIEval and C-Eval datasets to evaluate the AI model's performance, claiming a new AI beat of ChatGPT on some metrics.
Furthermore, Baidu possesses a whole stack of AI capabilities, including computing power, a deep learning framework, large language models, and AI applications. The company's commercial use cases span both business-to-business and business-to-consumer segments, encompassing AI search, AI cloud, autonomous driving, and Xiaodu smart home products. Baidu's willingness and ability to sustain AI research and development investments are also considered advantages.
Moreover, Morgan Stanley believes Baidu's extensive search data will allow the company to enhance its AI models over time, leading to a 12% upside to its core revenue estimates for 2025. Additionally, Baidu's cloud platform, which has already attracted more than 200,000 companies, is expected to benefit from the increasing demand for AI-driven business transformation, higher IT spending, and faster cloud adoption. Finally, at the macro level, As China approaches AI startup deals with those of the U.S., it is expanding the market space for Baidu's AI products.
Notable Hedge Funds' Moves
Bridgewater Associates, led by Ray Dalio, completely exited its position in Baidu by selling 702.47k shares. Bridgewater Associates is known for its systematic and quantitative approach to investing, using algorithms and models to make investment decisions. The decision to exit the position could be driven by the fund's quantitative analysis, which may have identified unfavorable signals or trends related to Baidu's financial performance or market outlook.
Whereas, Dodge & Cox reduced its position in Baidu by 3.19 million shares. As a value investor, Dodge & Cox typically seeks out undervalued companies with strong growth potential relative to their current stock prices. The reduction in its Baidu position may indicate concerns about the company's valuation or perceived risks that could impact its future growth prospects.
hedgefollow.com
Similarly, BlackRock reduced its position in Baidu by 615.14k shares. BlackRock employs a diversified investment approach and manages various types of funds. The reduction in Baidu's holdings could be driven by portfolio rebalancing or risk management considerations.
Also, Jim Simons' Renaissance Technologies, known for its quantitative investment strategies and use of complex mathematical models, reduced its position in Baidu by 247.80k shares. Renaissance Technologies' investment decisions are driven by sophisticated algorithms that analyze vast amounts of data. Baidu's position may be reduced based on signals its proprietary quantitative models generate.
On the other hand, Steven Cohen's Point72 Asset Management increased its position in Baidu by 323.75k shares. Point72 Asset Management is a multi-strategy hedge fund that combines fundamental analysis and quantitative strategies. The increase in Baidu holdings could result from a positive outlook on the company's growth prospects or identifying undervalued opportunities.
Baidu's Financial Challenges
Baidu faces specific risks and downsides based on the provided financial data. The Asset Turnover Ratio of 0.33x is lower than the sector median of 0.49x, indicating that Baidu may be less efficient in generating revenue from its assets compared to its peers. Although it aligns with its 5-year average, the relatively low turnover ratio may concern investors as it suggests a potential inefficiency in resource utilization.
seekingalpha.com
Additionally, the Revenue Growth forecast of 2.02% is considerably below the sector median of 5.22% and significantly lower than its 5-year average of 10.25%. The slower projected revenue growth could raise concerns about Baidu's ability to expand its business and capture market opportunities, potentially affecting its future profitability and stock performance.
Finally, Baidu's CAPEX Growth (YoY) of -33.18 % is notably lower than the sector median of 8.03%. While decreased capital expenditure could indicate a focus on cost control, it might also signify reduced investments in innovation and technological advancements, which could impact the company's competitiveness and ability to keep up with industry trends.
Takeaway
In conclusion, Baidu is making remarkable strides in the autonomous driving sector, evidenced by the impressive growth of its Apollo Go service. The significant increase in the number of rides provided on open roads and the government permits received for fully driverless ride-hailing services in China demonstrates the company's commitment to innovation and expansion. Finally, with its strong market position, continuous innovation, and a bullish outlook from Morgan Stanley, Baidu is driving the autonomous driving industry forward.
For further details see:
Baidu: Driving Towards Glory