Macquarie Equity Research initiated coverage of Baidu (NASDAQ:BIDU) with an Outperform rating and a target price of US$150 per share in a note Thursday.
Analysts told investors that Baidu's greater focus on its core ads business should drive steady market share while it also has room to benefit from a cyclical recovery in ads budget.
"Despite being a highly cyclical sector, advertising channels continue to see divergent performance as merchants pursue greater ROI with superior conversion," they explained. "That said, we expect conversion-oriented search ad demand to remain steady, as advertisers strive to maximise advertising efficiency and emerging new channels approaching maturity."
The firm expects the digital ads market to grow moderately at 10% yoy, with ad budgets channelled to search-related advertising remaining relatively stable, translating into 6% yoy core ad growth for Baidu in 2024E.
Furthermore, they said the company is primed to be an active contributor in the evolution of artificial intelligence with optionality upside.
"Baidu has been allocating above-average R&D resources to build a full-stack AI that covers both to-enterprise and to-consumer scenarios," they added. "While revenue contribution from GenAI remains small at low-single-digit %, we expect Baidu to maintain its leading position in China's AI Cloud market on the back of its strong AI capabilities and improving market recognition."