- U.S.-listed Chinese stocks have come back in favor with investors following their tariff-related selloff.
- The stocks benefit from stabilizing US-China ties and improving sentiment toward Chinese equities.
- As US-China trade tensions cool, investors are eyeing opportunities in undervalued Chinese stocks that stand to benefit from improved relations.
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As trade relations between the U.S. and China show signs of improvement, investors are reconsidering Chinese equities that were previously shadowed by tariff-related concerns. Two stocks that stand out in this evolving landscape are Baidu (NASDAQ:BIDU) and Li Auto (NASDAQ:LI), each positioned to benefit from both domestic growth and potentially improved international relations.
Below, we explore why Baidu and Li Auto are compelling investment options as the Trump administration and Beijing work toward a more stable trade environment.
1. Baidu
- Current Price: $89.19
- Fair Value Estimate: $145.10 (+62.7% Upside)
- Market Cap: $30.6 Billion
Baidu, often described as "China’s Google (NASDAQ:GOOGL)," has transformed from a search engine company into a diversified technology leader with significant investments in artificial intelligence, cloud computing, and autonomous driving.
Source: Investing.com
As US-China trade tensions ease, several factors make Baidu particularly attractive for investors seeking exposure to China’s tech sector. The company’s core search business maintains dominant market share in China, providing a stable revenue foundation that funds its expansion into high-growth areas.
However, it’s Baidu’s AI capabilities that present the most compelling growth narrative. Its Ernie Bot has emerged as one of China’s leading large language models, competing effectively with other domestic AI offerings while gaining rapid user adoption.
The cooling of trade tensions between Washington and Beijing could significantly benefit Baidu in several ways, helping the company accelerate its AI capabilities, particularly in its autonomous driving subsidiary Apollo.
From a financial perspective, Baidu trades at an attractive valuation relative to both its historical metrics and comparable U.S.-based technology companies. As per InvestingPro, Baidu delivers a strong financial profile, scoring 3.09 on its financial health (labeled “GREAT”) and boasting an eye-catching 62.7% Fair Value upside.
Source: InvestingPro
With substantial cash reserves, ongoing share repurchases, and improving margins in its core businesses, the company offers both value characteristics and significant growth potential as AI adoption accelerates in China’s massive domestic market.
2. Li Auto
- Current Price: $28.55
- Fair Value Estimate: $34.88 (+22.2% Upside)
- Market Cap: $28.9 Billion
Li Auto, a leading Chinese electric vehicle (EV) manufacturer, specializes in extended-range electric vehicles (EREVs) and battery electric vehicles (BEVs), catering to China’s growing demand for sustainable transportation.
Source: Investing.com
The company has carved out a niche in China’s competitive EV market, achieving consistent monthly sales growth that saw it recently surpass both NIO and XPeng (NYSE:XPEV) in delivery volumes. Its gross margins exceed many competitors, and the company has already achieved consistent profitability—a rarity among emerging EV manufacturers.
The easing of US-China trade tensions creates several tailwinds for Li Auto’s business. Most directly, any reduction in tariffs or trade barriers would improve its supply chain economics, particularly for semiconductor components used in its advanced driver assistance systems.
While Li Auto currently focuses on its domestic market, improving international relations could eventually facilitate expansion into other markets, particularly in developing regions. The company’s strong cash position provides flexibility to pursue such opportunities as they emerge.
Li Auto has an overall financial score of 3.41, earning a “GREAT” health label. The AI-powered quantitative models in InvestingPro point to a gain of 22.2% in LI stock from Thursday’s closing price of $28.55, aligning it with its ’Fair Value’ price target estimated at $34.88 per share.
Source: InvestingPro
With plans to launch additional models and expand its production capacity, Li Auto is positioned for continued growth regardless of geopolitical developments, with easing tensions providing additional upside potential.
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Disclosure: At the time of writing, I am long on the S&P 500, and the Nasdaq 100 via the SPDR® S&P 500 ETF (SPY), and the Invesco QQQ Trust ETF (QQQ). I am also long on the Invesco Top QQQ ETF (QBIG), Invesco S&P 500 Equal Weight ETF (RSP), and VanEck Vectors Semiconductor ETF (SMH).
I regularly rebalance my portfolio of individual stocks and ETFs based on ongoing risk assessment of both the macroeconomic environment and companies’ financials.
The views discussed in this article are solely the opinion of the author and should not be taken as investment advice.
Follow Jesse Cohen on X/Twitter @JesseCohenInv for more stock market analysis and insight.