Baidu Stock (BIDU) Dips as Analysts Upgrade Price Target

Baidu Inc. (NASDAQ: BIDU) is experiencing a surge of positive sentiment on Wall Street, despite a 10% drop in the stock price over the past week. The bullish view on the street is fueled by the burgeoning potential of its chip-design subsidiary, Kunlunxin, and management's hinted consideration of enhanced capital returns. 

The recent upgrade by Nomura from “Neutral” to “Buy,” with a price target increase from $135 to $140, has set the tone for a wave of bullish revisions from other prominent financial institutions. Nomura's rationale centers on the substantial growth prospects of Kunlunxin, in which Baidu holds a 69% stake, and the potential boost to shareholder value through enhanced capital return programs.

Kunlunxin is increasingly viewed as a critical component of Baidu's AI strategy. The development and deployment of Kunlun AI chips are expected to significantly enhance Baidu's AI capabilities, providing a competitive advantage in a rapidly evolving technological landscape. This strategic emphasis aligns with the broader industry trend of companies increasingly relying on proprietary chip development to drive AI innovation.

The impact of Kunlunxin's potential is evident in a series of recent analyst upgrades and price target revisions. CLSA raised its price target for Baidu to $160 from $105, maintaining an “Outperform” rating. Their analysis highlights key growth areas such as Apollo Go (Baidu's autonomous driving platform), AI-native commercial products, AI SaaS, AI cloud services, and, of course, Kunlun chips. CLSA noted that Apollo Go's daily ride numbers are now comparable to those of Waymo, a significant milestone in the autonomous driving sector. Furthermore, Baidu's AI cloud revenue is now on par with that of AliCloud, demonstrating its growing strength in the cloud computing market. A healthy gross profit margin of 47% and an attractive PEG ratio of 0.29 further underscore the strong fundamentals supporting Baidu's growth initiatives.

Macquarie followed suit, upgrading Baidu from “Neutral” to “Outperform” and setting a new price target of $176, a substantial increase from the previous $91. This upgrade reflects a strong bullish sentiment toward Baidu's future performance, acknowledging the company's robust market position and its significant potential for further growth.

Deutsche Bank also joined the chorus, upgrading Baidu to “Buy” and raising the price target to $160 from $90. The bank cited Baidu's strong positioning across various AI sectors, including cloud computing, robotaxis, intelligent search, and AI chips. The rapid growth of the AI Cloud division and Apollo Go's leadership in the global robotaxi market were specifically highlighted as key drivers for this positive outlook.

Goldman Sachs has also raised its target price for Baidu to $154, emphasizing the company's comprehensive AI capabilities “from chips to applications.” The firm doubled the valuation of Baidu's autonomous driving business, from $4 billion to $8 billion, reflecting significant breakthroughs in fleet expansion and cost optimization. Goldman Sachs also noted that Baidu's growth momentum has now significantly surpassed that of its traditional search business, signaling a successful pivot toward new growth areas.

Baidu's management is reportedly considering enhancing capital returns, a move that Nomura believes will further enhance the appeal of the stock. Such initiatives, including dividends, share buybacks, or other financial strategies, can signal confidence in the company's financial health and future prospects, making the stock more attractive.