Baidu Inc (ADR) (NASDAQ:BIDU) has been losing steam lately. Note that the shares have gone from $266 to $234 since mid-March. The big issue? It’s the threat of a trade war. President Trump signed an executive order that slaps $60 billion in restrictions on Chinese imports. In turn, China has launched its own volley. Biadu stock has been caught in the middle.
But this could only be the early innings. Keep in mind that one of Trump’s biggest concerns is the alleged theft of the intellectual property of the U.S. In other words, it looks like the mega tech operators like BIDU, Alibaba Group Holding Ltd (NYSE:BABA) and Tencent Holdings Ltd (OTCMKTS:TCEHY) will probably be targets of new trade actions.
And we may already be seeing evidence of this. Just look at the recent undoing of Broadcom Inc’s (NASDAQ:AVGO) attempted takeover of QUALCOMM, Inc. (NASDAQ:QCOM). Of course, Trump blocked the deal because of national security concerns.
OK then, so what now with Baidu stock? Well, on Thursday we should get some more clarity on this, as the company will report its first quarter results.
The consensus calls for revenues to hit $3.19 billion, up about 30% on a year-over-year basis. As for the earnings, they are expected to come in at $1.64.
And as for Baidu stock, it’s important to keep in mind that the latest quarter has seen some notable events. For example, the company pulled off the IPO of its online video platform, iQIYI, Inc (NASDAQ:IQ). It’s the largest player in the market, in terms of time spent watching. iQIYI also counts more than 50 million paid subscribers.
Yet the IPO was a flub. On the debut in late March, the shares lost nearly 14%. But they have since recouped much of the losses.
Baidu Stock and AI (Artificial Intelligence)
Regarding Baidu stock, AI is likely to be a key driver. Keep in mind that this technology has proven to be quite effective for the company’s search business, mobile apps and ad systems. In fact, BIDU refers to itself as an “AI first company.”
Note that the company has been expanding out into other categories as well. There is Apollo 2.0, which is focused on autonomous vehicles. Commercial production is expected next year and there are over 90 partners.
Then there is the DuerOS system, which is for conversional AI. The technology has been implemented in TVs, smartphones, toys, appliances, car dashboards and home speakers.
No doubt, all these are potentially enormous market opportunities – which should propel long-term growth for Baidu stock. For example, the home speaker category is forecasted to reach a staggering $115 billion by 2030.
Bottom Line On Baidu Stock
It’s true that the trade tensions will not be a positive. But then again, the success of BIDU stock is still mostly tied to China anyway. And for the most part, the country is likely to continue to see robust growth.
The middle class in China is expected to reach 600 million by 2020 (compared to 320 million in the US) and the ecommerce segment in the country is projected to jump from $470 billion in 2017 to $839.54 billion by 2021.
And finally, BIDU stock is at attractive levels. Consider that the forward price-to-earnings multiple is at 20X. All in all, this is pretty good, in light of the company’s strong search business and the growth opportunities from its AI investments.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
