Although I continue to believe that Baidu (NASDAQ:BIDU) stock has multiple strong positive catalysts, I recommend staying on the sidelines on the name for now.
I’m cautious on the name mainly because I believe that it could easily become a target for China’s zealous tech regulators.
For BIDU stock, it’s a very good sign that Baidu has apparently escaped the claws of Beijing until now.
Still, out of an abundance of caution, I think that it’s a good idea to wait for six months to a year before taking a bullish position in the name.
Baidu continues to make significant progress on its autonomous driving initiatives.
As of the end of last quarter, the company’s Apollo self-driving system had provided more than 400,000 rides traveling over 8.7M miles. What’s more, Baidu is already providing robo-taxi services in limited areas of Beijing and a number of other Chinese cities.
The firm hopes Apollo reaches mass public commercial availability in some cities within two years, one of the company’s executives told CNBC recently.
Meanwhile, the company last month unveiled its “robocar” project. Baidu implied that its robocar will, at some point, “drive autonomously, act as both an intelligent assistant and loyal companion, and be self-learning.”
Since I have long been very upbeat on the profitability of autonomous vehicles. I like their low labor costs and ability to generate huge amounts of revenue in both delivery and ridesharing.
I believe that Baidu’s already productive initiatives in this area will likely prove to be very lucrative.
On the AI front, Baidu recently launched a new semiconductor, the Kunlun II AI Chip, that’s 200% to 300% more powerful than its predecessor.
The Kunlun II AI Chip allows applications in scenarios including cloud, terminal, and edge, powering high-performance computer clusters, autonomous driving and biocomputing.
In light of my enthusiasm about AI technologies that are tailored to specific tasks, I’m very bullish on Baidu’s AI efforts in general and its new chip in particular.
The Chinese Crackdown and Baidu Stock
As I noted in a column published last month, I think that, “in order to prevent a revolution, China’s government is trying to rein in companies that either have a tremendous amount of money, i.e., hundreds of billions of dollars or the ability to easily communicate with many tens of millions of the country’s citizens.”
Indeed, the companies that Beijing has harshly reined in so far, from e-commerce giant Alibaba (NYSE:BABA) to ride-sharing company Didi (NYSE:DIDI) to video game makers to educational tutoring services, fit one or more of these characteristics.
I also now believe that China’s ruling Communist Party could also be interested in keeping companies that can influence hundreds of millions of the country’s citizens, including video game and tutoring services, on very short leashes.
As of the end of Q2, Baidu had nearly $170 billion in cash, and it appears to collect personal data on many Chinese citizens.
What’s more, as the operator of China’s largest search engine, Baidu can certainly significantly influence the information that the country’s hundreds of millions of internet users obtain.
In March, a Chinese government regulator fined Baidu, along with 11 other firms, a minuscule $77,000.
That was obviously much more of a warning than a punishment. My research did not produce evidence of any other punishments inflicted by Beijing against Baidu.
That suggests that, for now, the search-engine operator has not yet become an object of the Communists’ wrath. Still, that situation could change, almost literally, in an instant.
The Bottom Line on BIDU Stock
Although Baidu continues to have strong, positive catalysts, in light of the danger to the company posed by government regulators, investors should avoid taking a bullish position in the shares for at least six months.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Larry Ramer has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.