2023-07-17 12:10:55 ET
Goldman Sachs reiterated its Buy rating on Baidu ( NASDAQ: BIDU ) and has added the company to its Regional Conviction Buy list with revised 12-month target prices of US$197/HK$193 per share.
Goldman analysts noted that they view Baidu as one of the best positioned China Internet names pivoting to the secular Generative AI theme, with its expanding AI product suite backed by its four layers of generative AI service offerings.
The firm added that in near term in H2'23, Baidu is on track for steady search advertising recovery amid its high exposure to offline SME merchants, with potential margin upside from operating leverage.
While Baidu has come out as a relative outperformer amongst the China Internet large caps YTD, and now trades at 14x 12mf P/E. The analysts now look for 32%/62% further upside for the share price in their base/bull cases, as they expect Baidu’s earnings to remain on an upward revision cycle with space for valuation multiple expansion helped by a lineup of upward catalysts.
In H2 '23, the analysts expect a lineup of key catalysts including regulatory approval for large language models in general (Baidu likely in the first batch), the large scale rollout of Ernie bot/integration into Baidu search, plus early crystallization of its To-B business Ernie Qianfan, monetizing MaaS services (starting from H2'23, estimated RMB 5B revenue in 2025E) to reflect on the company's P&L.
In June, Baidu said that in beta testing, Ai model Ernie 3.5 surpassed ChatGPT (3.5) in comprehensive ability scores and outperformed GPT-4 in several Chinese language capabilities.
The analysts noted that they were turning more constructive than before on Baidu’s positioning for the secular AI trend, and anticipate the market will start to appreciate more the company's AI business once it begins to generate user traffic and then achieve revenue scale.
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Goldman Sachs adds Baidu to Conviction Buy list on generative AI opportunity