Cashing in on China's Internet Crown Jewel: Why Analysts are Bullish on Baidu's Generative-AI Future

Benchmark analyst Fawne Jiang reiterates Baidu Inc BIDU with a Buy and a $210 price target. BIDU delivered a beat and raise quarter.
With a sizable exposure to offline-driven verticals on top of a diversified SME merchant base, ad recovery turned out more robust than expected.
More importantly, a big surprise out of the quarter was that the AI cloud turned profitable.
Jiang finds it impressive that the cloud can quickly turn profitable in just a few quarters since the company pivoted towards efficiency improvement.
With reaccelerated ad growth and sustained cloud profitability, the analyst anticipates a significant upward revision in the FY23 margin.
The analyst views BIDU shares as uniquely positioned and a top pick considering 1) its strong net cash balance, 2) strong cash generation, 3) a fundamental ad beneficiary on reopening, and 4) margin upside/earning upward revision potential.
Mizuho analyst James Lee reiterates Baidu with a Buy and a $170 price target.
Baidu's core operating income came in well ahead of consensus due to the upside in ad recovery and cloud reaching profitability. Lee expects a rebound in both segments.
On Generative-AI, the product sets are ready with enterprise clients running early testing as the industry waits for the government review process before the commercial launch.
Lee believes the review process is short-term and consistent with existing policies and remains confident in Baidu's position in Gen AI, given its first-to-market advantage. The analyst maintains that Baidu is a top pick for China Internet.
Price Action: BIDU shares traded lower by 2.45% at $129.43 on the last check Wednesday.

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