Baidu is a speculative long-term buy: despite current headwinds, its AI growth, Apple partnership, and robo-taxi leadership could drive the stock higher.

Okay, so uh we all know that artificial intelligence has been by far the biggest overall theme and topic across the entire stock market for the past couple years. This is very obvious to anyone that's tracking the market and even kind of the economy at large.

But while many of those AI stocks have skyrocketed in price to break new record highs, what if I told you that one of the actually largest AI companies of the entire world is currently going through a gigantic multi-year crash to the point where it's even trading lower today than it did before the pandemic years ever even happened.

And this company, by the way, not only holds the most AI patents globally, but they also hold number one market share in AI cloud throughout Asia. They operate the largest autonomous uh robo taxi fleet currently in existence and they frequently get compared to Google in terms of the various platforms and softwares that they own and operate.

But what's the catch here? Well, it's a Chinese stock and I'm of course talking about by dude, ticker symbol BU, who's also the leader in uh the search market, search market share throughout the country in uh China, just like Google is here of course in the states and elsewhere.

Um but in recent years despite having you know very promising moments with big spikes in price uh right now the market really is treating this stock like it's almost uninvestable which to be fair a lot of people consider Chinese stocks in general to be exactly that and for good reason of course as you know foreign investors like any of us would have you know very little shareholder rights with Chinese companies.

But given that BIDU just reported earnings and the stock fell even more, I thought it'd be a good time to give you guys an update on this Chinese AI leader since we haven't done one in uh probably like one or two years or so.

Um despite me actually owning a little bit of the stock myself.

So uh let's once again take a look under the hood of BIDU and let's break down exactly why the stock has been falling by so much despite holding so much future promise in their business and in tech.

All right. Well, pulling up the stock chart, we can see that it's now lost around 70% of its entire value from the top, and it's even sitting lower today than it did an entire decade ago.

That's pretty crazy. Uh if you were hoping for a big rebound on the earnings that they just released uh just like this past week, well think again because shares just continue to fall even more where they now sit down over 30% in the past quarter alone.

So what on earth is causing investors to hit the sell button so aggressively? Well, it really comes down to all of the aggressive spending that they've been dumping into AI while not seeing nearly high enough returns on some of their legacy businesses like their traditional online marketing and advertising segments that have had a really tough comparison to the pandemic highs where everyone was you know at that time staying home and browsing online.

I see as the biggest search engine in the country BU also holds the most digital advertising market share in the region. But when things started opening back up outside um outside of homes um online traffic uh started to really correct back down coming off of the pandemic and this caused by Duce financials to correct for it too.

And now all we're really left with here is a much weaker global economy that is suffering from huge inflation, high interest rates, even trade wars and lots lots of more issues.

Um all of which greatly drives down not only consumer spending but just as important business spending which again BU heavily relies on in the advertising markets. Not to mention that competition has also greatly re risen in the that region too.

And so the result of all of this is that BIDU is now seeing little to no topline growth with plummeting profits that are only expected to slowly start crawling back up in future years.

Now, as a long-term investor who still treats this like a speculative stock because of it being Chinese, I greatly limit my exposure to it.

Well, it's not that hard for me to stomach some some of this volatility and wait for hopefully a rebound to come longer term.

So, I can understand that negative macro events like the ones that are currently going through uh you know will happen on occasion and so big drops in price are usually just buying opportunities if I still like the underlying business and its future potential.

But because the market usually cares more about current performance, especially these days with how inflated the market has become from AI, well, they're not so easily going to give a pass to a company that is struggling so greatly, which unfortunately for BU is pretty much the situation that they're in right now.

Just take their most recent earnings for example, where online marketing sales actually uh cratered fell by a whopping 19% year-over-year. their majorityowned streaming service, IQIY, um also saw its revenue slip by 5% as well.

And overall sales for the company at large uh sunk about 4% which completely missed analyst expectations.

Plus, if that wasn't bad enough, their bottom line looked even worse with EPS crashing by around 72% which also badly missed expectations. And part of the reason for this is again due to all of the heavy spending that they're pouring into AI.

For example, capex in the quarter actually tripled year-over-year up to nearly $1.7 billion. In other words, Wall Street is upset, rightfully so, that BIDU is pouring billions of dollars into future tech that hasn't fully paid off for them yet at a time when their legacy cash cow business is also going through one of the most difficult kind of uh comparison periods imaginable to to prior ones.

And so investors were really hoping that this level of spending would yield faster, more impressive financial returns sooner than than you know what it's taking.

Um but when it didn't when they didn't get those results um they they started punishing the stock for it. However, this is where much of the opportunity now I think starts to creep back in a bit because BIDU is actually going through a pretty big transformation beneath the surface that does look promising and it has of course everything to do with artificial intelligence which despite those other drags and and the tough compers uh their AI operations are actually growing at a pretty high rate.

In fact, already we know that BIDU's AI powered business now accounts for a whopping 50% of their entire general business revenue. And the growth metrics inside that AI segment are off the charts, too.

And for example, their AI cloud infrastructure sales soared by 50% year-over-year despite already leading the market.

And their GPU cloud revenue exploded by 283% year-over-year. This shows us that there is actually robust mounting demand for public cloud-based AI compute in China and BIDU is capturing a giant chunk chunk of that demand.

In fact, they're even seeing a ton of success with their own proprietary AI chips known as K Lungen. See, with the US placing heavy trade restrictions and tariffs on exporting high-end chips like Nvidia's into China, well, local tech giants have been forced to rely on domestic alternatives instead.

And BIDU's kungen chips have been really stepping up to fill some of that void.

And they're even looking to spin off this unit now so that it can IPO on the Hong Kong stock exchange where it would likely see a ton of success given all the demand for their AI chips that uh many times can't even be supplied enough by by current offerings.

Now during it its last um financing round for example the unit was valued at several billions of dollars meaning there could be a ton of hidden value locked inside of BIDU that the broader market hasn't fully appreciated yet.

But perhaps one of the most exciting near-term catalyst for BIDU is in their brand new partnership with Apple where just recently the cyerspace administration of China officially approved Apple intelligence for use in the country because Apple needs local Chinese AI models to power their services in the region.

They actually chose to partner with BU and Alibaba integrate their AI tools directly into iPhones, iPads, and MacBooks across the country.

That's a huge endorsement for BIDU's technology and having their AI integrated directly into the Apple ecosystem.

It gives them immediate access to millions of premium users. We haven't even talked about their autonomous driving division yet either, which is arguably just as important for their long-term future potential as anything else.

As we all know that analysts have been pricing the global robo taxi market to eventually reach, you know, trillions of dollars worth of value. Well, many people don't even know this, but BU's own Apollo Go is actually the global leader in robo taxi services, having now reached a footprint that spans across 28 different cities with over 23 million rides completed and over 350 million autonomous kilometers, including over 240 fully driverless kilometers driven as well.

And they're not just staying in China either, as they've already launched driverless commercial operations in Dubai.

They're rolling out autonomous ride hailing in Abu Dhabi. Uh they entered the South Korean market starting in Seoul. And they're even conducting open road testing in Switzerland and London right now too with more plans for expansion on the horizon as well.

In other words, this isn't just some random pipe dream anymore, but rather it's quickly becoming a very legitimate and scaling business that I think could turn by due into one of the most important global leaders in AV, auton, you know, autonomous vehicle, technologies, platforms, services, uh, long term and potentially it could just, you know, become another high margin kind of cash cow type of business that could send the price rising back up once again. Plus, it doesn't even stop there.

Uh, like I mentioned before, BIDU actually holds more AI patents than any other company in the world. And these patents, by the way, can later be leveraged into their own operations or even licensed out at high margins, too.

Meanwhile, they also continue to grow their own Ernie bots, which is their flagship large language model and chatbot for which they recently launched Ernie 5.0, which can seamlessly model text, images, audio, and videos all together.

has quickly grown to be incredibly popular in the region, boasting 200 million monthly active users as of the start of this year. So when you piece it all together, yes, there are current issues to absolutely be aware of, very much be cautious of that are acting as a drag on their business at present time, but the underlying AI engine that will drive kind of, you know, like the next decade of growth for BIDU is also becoming very real and and um there's really just kind of no telling how some of those certain areas within their AI business um how big they can become and how much it can really help propel the stock higher in the future.

So um with all of this in mind, what am I actually doing myself with BU stock at the moment considering how much it's falling? Well, again, I just have to give you guys like all the disclaimers in the world that um you know, I always treat any Chinese stock as purely like a speculative kind of long-term bet if I even choose to to dip my toes in it, if I'm even courageous enough to do so.

Because really, I don't care how strong the business might look. I I mean I actually think that Alibaba, for example, is one of like the strongest businesses in the world, but none of that gets prioritized higher than the fact that these are still Chinese VIE structured companies.

Meaning that US investors like myself are technically buying shares of an offshore shell company, not the physical underlying assets in China.

So I have almost no protection um for these investments. And especially, you know, with all the rising tensions between the US and China, um I would never make a Chinese stock one of my top holdings.

That's number one, first and foremost, above everything else. But beyond that, uh I am actually buying a small amount of BIDU shares on the dip for what I still think is one of the more kind of promising names in AI for the world.

And I actually feel like very much the same about Alibaba too as kind of like the Chinese Amazon alternative where BU is kind of the Google one.

Uh if these companies were American um they would in my opinion be two of like the most undervalued stocks imaginable but because they are Chinese you know rightfully so they tend to trade at these like really big discounts which even right now as um as a as a Chinese stock by um they still trade at an EV to sales and and profits ratio that is um significantly lower than the broader tech sector and they hold um average price targets from analysts that would see over a 60% rise in just the next 12 months alone.

Again, I'm okay with this setup here because I acknowledge the risk. I do my research and I only make investing decisions that I'm fully comfortable with. So, I sleep fine at night owning a couple of these, you know, Chinese stocks because I just think that the value is clearly there.

But, you know, I can also understand that for others, the the risk involved with these kinds of of names um may just not be worth it.

And um that's completely reasonable, too. But um hey, speaking of which, I would love to get your guys' thoughts on all of this. So, let me know down in the comments section. Are you uh looking at this, you know, 70% crash in BIDU stock as an opportunity to grab some shares on the dip or do you just think that all of the um current struggles combined with the fact that, you know, these are Chinese stocks just make them, you know, too scary to touch?

I would love to hear all those different perspectives on it down below in the comment section.

Um but hey, either way, I just hope that you enjoyed this update on BIDU stock. Let me know if there's any other stock that um we haven't given an update on uh to recently that you guys would like to hear me talk about.

Let me know down below what what those are and I can make those videos for you. But hey, either way, I just hope that you're all doing well. I thank you for stopping by and uh I'll catch you guys in the next video.

All right, take care, my friends. Bye-bye.