AI Frenzy Sends Baidu Shares Soaring

Shares of Baidu Inc (BIDU) have jumped 45% this year, including a 15% surge today after China’s largest search engine said it would unveil its artificial intelligence (AI) chatbot service in March.  Baidu’s ChatGBT-like platform is similar to OpenAI’s ChatGBT and will be called ERNIE Bot, and Baidu said the application would be embedded into its main search services. 

Baidu has spent billions of dollars researching AI to transition from online marketing to deeper technology.  Its ERNIE system will be the foundation of its ChatGBT-like tool.  Open AI’s ChatGBT has set the internet afire since its public debut in November, amassing more than a million users within days.  However, the recent surge in Baidu’s stock price has pushed the shares to just 1.1% below analysts’ consensus target price for the stock over the next 12 months, suggesting little upside to gain unless its AI progress brings a fundamental revaluation.

Union Bancaire Privee said generative AI is unlikely to translate into real earnings for Baidu in the near term.  However, “the market hasn’t attributed much value to Baidu’s AI capabilities, and excitement around its new chatbot could help raise investor awareness.”  Also, Morningstar said the rollout “should strengthen the competitive moat from other search engines and could potentially enhance the attractiveness of advertising on the platform.”

Most analysts are optimistic about Baidu’s future ad revenue prospects, although Baidu is expected to report a decline in Q4 revenue when it reports earnings in the next few weeks.  JPMorgan Chase and Macquarie Capital Ltd predict a 2023 recovery in ad revenue and margins for Baidu after a likely lackluster fourth quarter, due in part to China’s reopening and the company’s recent cost-control measures. 

Baidu’s American depositary receipts (ADRs) have surged 25% this year through Monday.  Macquarie Capital Ltd boosted its price target on Baidu shares last month and said, “we believe there is more momentum for Baidu ERNIE if successfully launched in March, as it adds a secular growth driver to the shares.”  Also, Goldman Sachs last month said it expects further earnings upside for China’s internet sector and raised its recommendation on Baidu to buy. 

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