Baidu stock price target cut to $110 at US Tiger Securities

On Wednesday, US Tiger Securities analyst Bo Pei revised the price target for Baidu (NASDAQ:BIDU), lowering it to $110.00 from the previous $118.00, while maintaining a Buy rating on the shares. The adjustment comes in the wake of Baidu’s first-quarter results, which showed strong performance but also indicated near-term challenges for the company’s search business amid an ongoing transition to artificial intelligence (AI). According to InvestingPro analysis, Baidu appears significantly undervalued at its current price of $85.54, with a P/E ratio of just 9.95x.

Baidu reported a 6% year-over-year decline in core advertising revenue, a slight improvement compared to the 7% decrease in the previous quarter. This downturn is attributed to the impact of shifting from traditional search monetization to an AI-driven search model. Baidu has increased the presence of AI-generated content in its mobile search results to 35%, up from 22% in January. Despite this growth, the monetization of AI content is still in its infancy, requiring the development of new advertising formats and delivery models. The company maintains a healthy gross profit margin of 50.42% and generates substantial revenue of $18.24 billion. For deeper insights into Baidu’s AI transition strategy and its impact on financials, check out the comprehensive analysis available on InvestingPro.

The company’s AI Cloud revenue saw a significant surge, rising 42% year-over-year to RMB 6.7 billion in the first quarter of 2025, marking an acceleration from the 26% growth seen in the fourth quarter of 2024. This increase is credited to widespread demand for generative AI training and inference across various industries. With subscription-based revenue now making up the majority of enterprise cloud income, Baidu is experiencing sustainable top-line growth. The firm’s Gen-AI-related revenue continues to see triple-digit year-over-year growth, while non-GAAP operating margins have expanded, reflecting the benefits of scale and an improved product mix.

In the autonomous driving sector, Baidu’s Apollo Go service delivered 1.4 million rides in the first quarter, a 75% increase from the previous year. The service has expanded internationally to Dubai and Abu Dhabi and now operates in 15 cities worldwide. Apollo Go’s success is underpinned by Baidu’s low-cost RT6 robotaxi and a validated business model that allows for efficient scaling. Additionally, Baidu has initiated a strategic partnership with CAR Inc. to introduce autonomous vehicle rentals, a move towards asset-light models that could improve unit economics and deployment speed.

While Baidu’s first-quarter performance demonstrated strong execution in AI Cloud and autonomous driving, the company’s short-term earnings trajectory is under pressure due to the ongoing transition to AI-native search and substantial AI investments. Despite these headwinds, management remains committed to enhancing user experience and is confident in the long-term growth potential of its AI and autonomous driving initiatives. InvestingPro data reveals a "GREAT" overall financial health score of 3.09, with projected revenue growth of 3% for FY2025, suggesting strong fundamentals despite the transition period. Get access to over 30 additional key metrics and exclusive ProTips about Baidu’s AI strategy with an InvestingPro subscription.

In other recent news, Baidu reported significant financial and strategic developments. Macquarie analyst Ellie Jiang revised Baidu’s stock price target to $83, maintaining a Neutral rating, as the company navigates a challenging economic environment and competition in China’s search sector. Baidu’s primary advertising business is projected to see a 6% decline in revenue for the first quarter of 2025, while its AI Cloud segment is expected to grow by 25% in the same period. Meanwhile, Baidu announced a strategic agreement with Dubai’s Roads and Transport Authority to deploy 100 Apollo Go autonomous vehicles by 2025, with plans to expand to 1,000 by 2028. This move aligns with Dubai’s goal to convert 25% of its transportation to autonomous mode by 2030.

In financial maneuvers, Baidu revealed a $2 billion exchangeable bond issuance to facilitate the sale of a significant portion of its stake in Trip.com. Bernstein maintained a Market Perform rating with a $108 target, noting that Baidu’s capital actions are intriguing but not indicative of a strategic shift. Citi analyst Alicia Yap reaffirmed a Buy rating with a $139 target, highlighting Baidu’s plans to use bond proceeds to repay debts and potentially enhance share repurchase activities. Yap also pointed out Baidu’s focus on artificial intelligence, with expectations for accelerated growth in cloud revenues and the upcoming release of its open-source Ernie 4.5.

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