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On Thursday, UBS analyst Wei Xiong revised the price target on Baidu stock, listed on (NASDAQ:BIDU), to $107 from the previous target of $123, while still recommending a Buy rating for the company’s shares. Currently trading at $85.48, Baidu maintains attractive valuation metrics with a P/E ratio of 9.95 and a PEG ratio of 0.47. The adjustment follows Baidu’s first-quarter revenue surpassing expectations due to significant growth in its cloud services. Despite this positive performance, Baidu’s stock experienced a decline during intraday trading, prompted by concerns among investors about a potential slowdown in the company’s core advertising revenue over the next quarters as it undergoes a search AI transformation. InvestingPro analysis indicates the stock is currently undervalued based on its comprehensive Fair Value model.
Baidu has been integrating AI-generated content into its mobile search results, with a notable increase from 22% in January to 35% in April. Analysts project that this figure will exceed 50% in the second half of 2025. The move towards AI has improved user engagement, as reflected by a 7% year-over-year increase in monthly active users (MAUs) of the Baidu app. The company’s management is looking to accelerate this product innovation to enhance search quality further. According to InvestingPro’s Financial Health assessment, Baidu maintains a "GREAT" overall score of 3.05, with particularly strong marks in profit (3.57) and relative value (3.35). For deeper insights into Baidu’s AI transformation strategy and its impact on financial metrics, subscribers can access the comprehensive Pro Research Report, one of 1,400+ available on the platform.
However, the monetization of AI search is still in its early stages. Baidu’s management is cautiously exploring new advertising formats to balance revenue generation with maintaining a positive user experience. The company currently maintains a solid gross profit margin of 50.42% and generates $18.2 billion in revenue. Consequently, a decline in core advertising revenue is anticipated to widen to approximately 10% year-over-year in the second and third quarters, with hopes of a gradual recovery by the fourth quarter. The anticipated decrease in advertising growth is likely to affect core margins due to operational leverage issues and a shift in the mix that is not favorable.
In his comments, Xiong noted the near-term challenges Baidu faces but also pointed out the company’s strengths that support the Buy rating. These include a low valuation at eight times the projected 2025 earnings, a significant net cash position of approximately $22 billion—which accounts for over 70% of Baidu’s market capitalization—and the potential for long-term growth opportunities in AI. InvestingPro subscribers can access detailed valuation metrics, including Fair Value estimates and growth projections, along with 12 additional ProTips that provide crucial insights into Baidu’s investment potential.
In other recent news, Baidu reported a 6% year-over-year decline in its core advertising revenue for the first quarter of 2025, amid a transition to AI-driven search models. Despite this, the company’s AI Cloud segment experienced significant growth, with revenue surging by 42% to RMB 6.7 billion, driven by increased demand for generative AI training. Additionally, Baidu’s autonomous driving service, Apollo Go, expanded internationally, with plans to deploy 100 robotaxis in Dubai by the end of 2025. The company also announced a strategic partnership with Dubai’s Roads and Transport Authority to support the city’s autonomous transportation goals.
Analysts have offered varied perspectives on Baidu’s stock. US Tiger Securities maintained a Buy rating, although it lowered the price target to $110, citing the company’s ongoing challenges in monetizing AI-generated content. Meanwhile, Macquarie maintained a Neutral rating with a reduced price target of $83, highlighting uncertainties in Baidu’s advertising business amidst economic pressures. Bernstein retained a Market Perform rating with a $108 target following Baidu’s issuance of $2 billion in exchangeable bonds aimed at reducing its stake in Trip.com.
Citi analyst Alicia Yap reaffirmed a Buy rating with a $139 price target, noting Baidu’s strategic use of bond proceeds to repay debt and potentially enhance share repurchase activities. Yap emphasized the company’s focus on AI initiatives, including the upcoming release of its open-source Ernie 4.5, as a promising growth area. These developments reflect Baidu’s strategic efforts to navigate challenges while capitalizing on opportunities in AI and autonomous driving sectors.
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