Chinese technology stocks have been largely overlooked by the markets over the last few years through the generative artificial intelligence boom. However, this sector is back in focus following the launch of China’s DeepSeek AI model, which promises near ChatGPT-level performance with a fraction of the cost and computing power, highlighting the strong AI capabilities of Chinese companies. Big Chinese tech names have picked up momentum over the last few weeks. For instance, Alibaba stock (NYSE:BABA) is up almost 52% since early January, while Tencent stock has gained over 25% over the same period. Baidu’s stock (NASDAQ: BIDU) has underperformed relative to these peers, rising by just about 6% over the same period. However, Baidu could have more upside given its advancements in AI, including Ernie Bot and self-driving technology, and also being one of the few publicly listed plays on China’s AI sector.
Why Has Baidu Stock Been Struggling
Baidu stock has declined by over 70% from its 2021 highs, driven by China’s weaker-than-expected post-Covid-19 economic rebound. The real estate crisis has driven down home prices, eroding household wealth and consumer confidence, while youth unemployment remains high. As China’s largest search engine, Baidu relies on digital advertising for more than half of its revenue. With small businesses cutting ad budgets, sales on Baidu’s search platforms have slowed, especially in key categories such as e-commerce, real estate, and travel. In Q4 2024, Baidu’s online marketing revenue stood at 17.9 billion yuan (about $2.5 billion), marking a 7% year-over-year decline. The company expects search advertising revenue to turn positive only in the second half of 2025, indicating that the headwinds could persist through the first half of this year, weighing on overall revenue growth.
Baidu’s AI & Cloud Business
Baidu’s AI cloud division saw its Q4 revenue growth pick up to 26% year over year, helping to offset the weakness in the core online advertising business. Baidu has invested considerably in its AI capabilities including technology for robo-taxis and generative AI services. The company says that its Ernie AI model now sees 1.65 billion daily API calls with external usage growing 178% quarter-over-quarter. Baidu Wenku’s AI features reached 94 million MAUs (monthly active users), with a 216% year-over-year growth rate. Baidu has been looking to open source its AI models in order to encourage broader adoption. As users integrate more of Baidu’s tools into their applications, it could help drive people to the company’s cloud services for AI-related workloads, driving up revenues. That being said, there could be some moving parts with the impact of Gen AI to Baidu’s overall strategy. Baidu may have to figure out competent monetization strategies particularly as it rolls out more AI into its core search product, since the technology deployed at the moment has less scope for advertisements. Competition for search could also become more intense, as Chinese tech players such as Alibaba and Tencent are developing competing large language models, which could challenge Baidu’s position in the search market.
Notably, BIDU stock has performed worse than the broader market in each of the last 4 years Returns for the stock were -31% in 2021, -23% in 2022, 4% in 2023, and -29% in 2024. The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is less volatile. And it has comfortably outperformed the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment around rate cuts and multiple wars, could BIDU face a similar situation as it did in 2021, 2022, 2023, and 2024 and underperform the S&P over the next 12 months – or will it see a recovery?The Chinese government appears more committed to economic stimulus measures to revive growth, signaling a shift toward looser monetary policy and more active fiscal spending in recent months. Meanwhile, at around $87 per share, we see Baidu as very fairly valued. The stock trades at under 9x consensus 2025 earnings, well below the nearly 40x multiple it traded at during the Covid-19 pandemic. Additionally, Baidu’s cash net of debt stands at about $11 billion. That’s approximately a third of its current market cap. Excluding the cash position, Baidu stock trades at just about 6x forward earnings, which is very reasonable. We value Baidu stock at about $94 per share, which is slightly ahead of the current market price. See our analysis of Baidu Revenue and Baidu Valuation for more details on how the company’s revenues are trending and how its valuation compares with peers.
| Returns | Feb 2025 MTD [1] |
Since start of 2024 [1] |
2017-25 Total [2] |
| BIDU Return | -3% | -26% | -47% |
| S&P 500 Return | 1% | 28% | 173% |
| Trefis Reinforced Value Portfolio | -7% | 15% | 680% |
[1] Returns as of 2/25/2025
[2] Cumulative total returns since the end of 2016
Invest with Trefis Market-Beating Portfolios
See all Trefis Price Estimates
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
