Baidu Trading at a Discount at 8.59X: Should You Buy the Stock?

Baidu, Inc. BIDU is currently trading at a discount relative to its industry and historical metrics, with its forward 12-month price-to-earnings (P/E) ratio sitting below its five-year average, as shown below. It currently has a Value Score of B.This is a deep discount to the broader tech sector and even to Chinese peers. By comparison, Alibaba BABA has a forward P/E of 10.96 and Tencent TCEHY has 16. Meanwhile, the Zacks Computer and Technology sector is currently trading at 26.22X.Baidu ValuationImage Source: Zacks Investment ResearchIn terms of Baidu’s share price performance, its shares have gained only 1.8% so far this year. Meanwhile, its peers Alibaba and Tencent have surged 40.8% and 24.2%, respectively, during the same time frame. The Zacks Internet – Services industry has lost 6.3%, and the Zacks Computer and Technology sector has gained 1.3% year to date.Share Price PerformanceImage Source: Zacks Investment ResearchLet’s analyze BIDU’s current strengths and risks to determine if the stock warrants an investment at this stage.Baidu’s Growth DriversBaidu’s most immediate opportunity lies in the continued rapid scaling of its AI Cloud business. In the first quarter of 2025, AI Cloud revenue surged 42% from a year ago to RMB 6.7 billion, accelerating from 26% growth in fourth-quarter 2024. This segment now makes up 26% of Baidu Core revenue, up from 20% a year ago—a clear sign that AI Cloud is becoming a central growth driver. Triple-digit growth in generative AI and foundation model-related revenue within Cloud further suggests strong demand tailwinds. As China’s enterprise AI adoption deepens, Baidu’s Qianfan MaaS platform—with its broad model library, industry-leading inference cost efficiency, and support for multimodal and reasoning models—positions the company to consolidate its share in this expanding market.Another major opportunity is Baidu’s autonomous driving business. Apollo Go provided approximately 1.4 million rides in first-quarter 2025, up 75% year over year, and management confirmed that the service is now fully driverless in mainland China and entering new global markets such as Dubai, Abu Dhabi, and Hong Kong. The fleet of more than 1,000 driverless vehicles and the unique, sub-$30,000 unit cost of the RT6 purpose-built robotaxi give Baidu an edge in scaling autonomous mobility. New partnerships, such as with CAR Inc., could further support asset-light, scalable growth. Baidu’s AI-powered search transformation also represents a significant long-term opportunity. As of April 2025, about 35% of mobile search results contained AI-generated content, up sharply from 22% in January. Management expects this penetration to keep rising in the second quarter. While monetization is in early testing, the ability to monetize long-tail queries and new formats could eventually expand Baidu’s ad revenue base beyond the limits of traditional search.Baidu’s Challenges to OvercomeWhile user experience and engagement metrics are improving with AI search, monetization approaches are still being rebuilt from scratch, with management cautioning that the transformation will place notable near-term pressures on revenue and margin. There is uncertainty around how quickly and effectively Baidu can convert AI-driven engagement into sustainable ad revenue.Again, AI chip supply constraints are an external risk. U.S. export restrictions on advanced AI chips could affect Baidu’s ability to support large-scale training and inference for its models. Management emphasized its flexibility with domestic chips and software optimizations, but the risk remains that supply limitations or performance gaps in domestic chips could hinder Baidu’s AI Cloud scalability or competitiveness.Competitive intensity is rising in both AI cloud and AI search. Chinese tech giants are racing to release advanced models, improve inference cost structures, and capture enterprise cloud spend. Moreover, large platforms with massive user traffic (e.g., Tencent, Alibaba) are integrating AI into their ecosystems, increasing competitive pressure.Margin pressure from elevated AI investments is another consideration. In the first quarter, Baidu reported negative free cash flow of RMB 8.9 billion, largely due to heightened AI investments. With R&D intensity declining (R&D expenses were 16% of Baidu Core revenue this quarter, down from 21% from a year ago), Baidu must balance innovation speed with financial discipline.Earnings Estimates Trend & Growth Rate for BaiduOver the past 30 days, the Zacks Consensus Estimate for Baidu’s current-year earnings per share (EPS) has decreased, as you can see below, depicting analysts’ concerns over the company’s prospects.Image Source: Zacks Investment ResearchHow to Play BIDU Stock Now?Despite trading at a seemingly attractive discount, Baidu’s near-term risks outweigh its potential rewards. The company faces rising uncertainty in monetizing its AI-driven businesses. While AI Cloud growth is robust, it remains vulnerable to escalating competition from peers like Alibaba and Tencent, both of whom are outpacing Baidu in stock performance. Furthermore, Baidu’s AI search transformation is still in its infancy, with unproven monetization strategies likely to pressure revenue and margins in the coming quarters. The company is also exposed to U.S. AI chip restrictions, which could impair the scalability of its models. Baidu’s negative free cash flow and declining R&D intensity raise additional concerns about its ability to maintain a technological edge. The recent downward trend in EPS estimates underscores analysts’ growing caution. With stronger-performing alternatives in the Chinese tech space and rising operational headwinds, now appears an opportune time for investors to exit BIDU stock. BIDU currently carries a Zacks Rank #4 (Sell).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Zacks Names #1 Semiconductor StockIt's only 1/9,000th the size of NVIDIA which skyrocketed more than +800% since we recommended it. NVIDIA is still strong, but our new top chip stock has much more room to boom.With strong earnings growth and an expanding customer base, it's positioned to feed the rampant demand for Artificial Intelligence, Machine Learning, and Internet of Things. Global semiconductor manufacturing is projected to explode from $452 billion in 2021 to $803 billion by 2028.See This Stock Now for Free >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Baidu, Inc. (BIDU): Free Stock Analysis Report Tencent Holding Ltd. (TCEHY): Free Stock Analysis Report Alibaba Group Holding Limited (BABA): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks