Baidu vs. Alibaba: Which Chinese Tech Stock Has More Upside?

Baidu BIDU and Alibaba BABA are among China’s most established technology conglomerates, operating within the domestic tech sector. AI and cloud computing have become central areas of competition. Large Chinese technology platforms are investing heavily in AI models, cloud infrastructure and enterprise-facing software as businesses increasingly adopt data-intensive and automated solutions. Within this environment, both Baidu and Alibaba are competing across overlapping segments of AI infrastructure, foundation models and cloud-based enterprise services.While Alibaba expanded from its e-commerce base into cloud computing, Baidu leveraged its search platform to build an AI-centric ecosystem spanning models, infrastructure and applications. This convergence has intensified competition in enterprise AI and cloud solutions, where execution and monetisation depth are increasingly important. Let us delve deep to determine which one is a better investment now.The Case for BaiduBaidu has established a comprehensive AI cloud infrastructure that integrates computing resources, foundation models and enterprise applications, positioning the company to benefit as Chinese enterprises expand AI adoption across core operations. At the centre of this strategy is the ERNIE foundation model. ERNIE 5.0 supports multi-format understanding, content generation and instruction processing, enabling a range of enterprise solutions. These include self-evolving AI agents deployed in transportation, energy, logistics and port operations, as well as digital employee applications in sectors such as education, including AI-driven language learning tools. The Qianfan platform further strengthens Baidu’s enterprise offering by providing access to model libraries, agent development tools and scalable infrastructure, allowing businesses to build and deploy AI applications within a unified ecosystem.The company demonstrated subscription-based AI infrastructure revenue growth of 128% year over year in the third quarter, supported by expanding adoption in embodied AI and automotive verticals. Beyond cloud services, Baidu continues to benefit from its leading position in China’s internet search market, which supports data depth and traffic scale. In parallel, the Apollo Go autonomous driving platform reached operational scale, delivering more than 3 million fully driverless rides during the quarter, reinforcing Baidu’s position in smart mobility applications.However, the AI cloud business operates at 9% non-GAAP margins as BIDU prioritises infrastructure expansion to meet rising enterprise demand across China's tech sector. Baidu recorded asset impairments in the third quarter as it proactively upgrades infrastructure to align with evolving AI computing requirements, demonstrating a commitment to maintaining technological leadership over maximising near-term profitability. The Zacks Consensus Estimate for fourth-quarter EPS is pegged at $1.50, reflecting the investment phase as Baidu focuses on long-term positioning in China's rapidly developing AI landscape.Baidu, Inc. Price and Consensus Baidu, Inc. price-consensus-chart | Baidu, Inc. QuoteThe Case for BABAAlibaba's strategic approach pursues multiple initiatives simultaneously, with AI infrastructure investments competing for capital alongside significant quick commerce expansion and consumer AI applications through Qwen, creating execution complexity across dispersed priorities without achieving decisive leadership in any single domain. The Qwen foundation model powers cloud services, with Qwen3-Max achieving performance in certain coding and agent benchmarks, though the company struggles to demonstrate how these capabilities translate into sustainable competitive advantages within China's technology sector. BABA operates public cloud infrastructure supporting AI workloads for Chinese enterprises, reporting cloud revenue growth of 34% year over year in the fiscal second quarter, yet this expansion comes at the cost of profitability erosion. The Qwen consumer app surpassed 10 million downloads in its first week, representing an unproven expansion into consumer applications where competitive dynamics remain uncertain. Alibaba's positioning relies on its Taobao and Tmall e-commerce platforms providing data for AI development, though the company has failed to articulate how this data advantage produces measurable competitive differentiation.The cloud business operates at 9% adjusted EBITDA margins that remained flat year over year despite revenue growth acceleration, revealing a structural inability to convert scale into profitability improvements within China's competitive technology sector. Alibaba faces open-ended capital expenditure commitments for AI infrastructure, with planned investments of $52 billion over three years potentially insufficient to meet enterprise demand, yet BABA appears unable to establish clear correlations between infrastructure spending and incremental revenue generation, exposing weak capital allocation discipline.Free cash flow shifted to an outflow of $3 billion in the second quarter as scattered investments across AI infrastructure, quick commerce and consumer applications accelerated without demonstrating near-term profitability pathways. The Zacks Consensus Estimate for fiscal third-quarter EPS is pegged at $2.41, indicating 23.55% year-over-year decline, reflecting how unfocused capital allocation across competing priorities systematically erodes profitability in China's rapidly evolving AI technology sector.Alibaba Group Holding Limited Price and Consensus Alibaba Group Holding Limited price-consensus-chart | Alibaba Group Holding Limited QuotePrice Performance and Valuation ComparisonOver the past six months, Baidu shares have risen 45.6%, while Alibaba has appreciated 34.3%. Baidu’s stronger performance reflects improving investor confidence in its focused enterprise AI strategy and visible traction in AI cloud and adjacent platforms. Alibaba’s more muted upside suggests ongoing caution around capital intensity and execution complexity across its broader ecosystem.BIDU Outperforms BABA Over 6-Month PeriodImage Source: Zacks Investment ResearchBaidu trades at a forward price-to-sales ratio of 2.17x compared to Alibaba’s 2.29x, with Baidu carrying a Value Score of C, indicating relative undervaluation, while Alibaba holds a Value Score of F, suggesting overvaluation. This valuation gap reflects the fact that Alibaba’s scale and business diversity are largely priced in at current levels, while Baidu’s more focused exposure to enterprise AI and cloud monetisation provides a modest valuation edge.BABA Trades at a Premium Compared to BIDUImage Source: Zacks Investment ResearchConclusionBaidu and Alibaba are investing heavily across AI and cloud, but the quality of execution differs. Baidu’s strategy remains tightly focused on enterprise AI, combining cloud infrastructure, proprietary foundation models and application-led use cases, with visible traction in subscription-based AI cloud and support from its search and autonomous driving platforms. Alibaba’s scale and ecosystem breadth are evident, yet cloud margin pressure, capital dispersion and weaker return visibility continue to weigh on its profile. Against this backdrop, Baidu holds an edge over BABA at current levels. BIDU carries a Zacks Rank #3 (Hold), while BABA carries a Zacks Rank #5 (Strong Sell).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Radical New Technology Could Hand Investors Huge GainsQuantum Computing is the next technological revolution, and it could be even more advanced than AI.While some believed the technology was years away, it is already present and moving fast. 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(BIDU): 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