By Sam Boughedda
Following an investor call with Baidu (NASDAQ:BIDU) management, Mizuho analysts believe there are multiple catalysts ahead for the company.
There are "several idiosyncratic drivers beyond China's expected macro recovery," said the analysts, who maintained a Buy rating and $190 price target on the stock, which remains Mizuho's China Internet Top Pick.
"First, the company has the first-mover advantage in Generative AI with the launch of Ernie-Bot, which has features comparable to ChatGPT, leveraging Baidu search data and ML," wrote the analysts. "As a result, the valuation discount between Baidu and Alphabet (NASDAQ:GOOGL) could narrow."
They also stated that the firm anticipates Baidu will resume double-digit growth in cloud revenue with a clear path to profitability, and that, with ADAS still a strategic tech, they expect Baidu to benefit from OEM adoptions and accelerated backlog growth. "Both could lead to a SOTP valuation that potentially adds about $55/share," they said.
"We expect BIDU to remain laser-focused on margins. For advertising, we believe the company plans to maintain high margins. For AI Cloud, we believe BIDU could reach profitability in 1-2 years (shortened from about 3 years), as the company benefits from the multiple tailwinds we described earlier," they added.