A Solid AI Development Strategy Makes Baidu Inc Stock a Buy

BIDU stock has slipped, providing an attractive entry point

By Tom Taulli, InvestorPlace Writer & IPO Playbook Editor

baidu stock

Since the latest earnings report (which came out in late October), Baidu Inc (ADR)(NASDAQ:BIDU) stock has been listless. A big issue is that the company fell below expectations for revenues. BIDU stock already had staged a nice run for the year, up about 43%.

Yet it was still much less than the performance of other Chinese Internet giants like Alibaba Group Holding Ltd (NYSE:BABA) and Weibo Corp (ADR)(NASDAQ:WB). So then what now for the BIDU stock price? Is there an opportunity here? Well, I think so.

First of all, it is important to keep in mind that the core search business is still doing quite well. Baidu is the No. 2 player in the world and of course, is the dominant player in China, with a 75% marketshare. And this positioning is likely not to change any time soon.

Let’s face it, Baidu has a tremendous advantage as it has a long history of dealing with the nuances of the governmental system. This makes it extremely difficult for a foreign operator to get a piece of the opportunity.

Next, BIDU has been investing heavily in expanding its search platform. A key part of this has been with its initiatives with online video. The iQiyi platform has 78 million desktop and 160 million mobile users. More important, the growth continues to be robust.

During August, the monthly time spent came to 461 billion minutes, up 29.5% year-over-year. A critical part of the strategy is that Baidu has been able to develop engaging video content. A prime example is “The Rap of China,” which is a reality show about rap. For its first season, there were a staggering 2.7 billion views!

But perhaps the most important driver for BIDU stock, at least for the long-term, is Artificial Intelligence (AI). Part of the strategy is to use this technology to bolster the search business, which is already showing traction.

Consider that AI has been extremely helpful in making better search experiences for mobile apps, which require more optimized approaches because of the small form factors. AI has also been useful in enhancing the personalization of the feed.

But there are other AI efforts that are likely to help boost the BIDU stock price. Here’s a look:

  • Apollo 1.5: This is the upgrade for the open source platform for self-driving cars. Some of the marquee partners include Ford Motor Company (NYSE:F), Microsoft Corporation (NASDAQ:MSFT), NVIDIA Corporation (NASDAQ:NVDA) and Daimler AG (ADR)(OTCMKTS:DDAIY). What’s more, BIDU has launched its own venture fund to help monetize the technology.
  • DuerOS: This is the voice-assistance technology for smart devices. A few weeks ago BIDU announced it was launching its own connected speaker that is similar Amazon.com, Inc.’s (NASDAQ:AMZN) Echo as well as two robots.
  • ABC Cloud: This is a cloud system that is focused on the high-end needs of enterprises.
  • FSG: This technology allows for better assessment of credit risks for financial products, which is certainly a large market opportunity.

Bottom Line on the BIDU Stock Price

The fundamentals for BIDU stock do look robust. During the latest quarter, revenues jumped by 29% to $3.53 billion and free cash flow increased by 35% to $1.2 billion. In other words, the company has the resources to continue its ambitious technology programs for AI.

Now the results of these investments will not be immediate. But for investors looking for a long-term play on the Chinese market, BIDU does look like a reasonable option.

Tom Taulli is the author of High-Profit IPO StrategiesAll About Commodities and All About Short SellingFollow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media, https://investorplace.com/2017/12/bidu-stock-ai-strategy/.

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