BIDU Stock Price: Baidu Inc. 2017 Stock Outlook Remains Strong As AI Investment Takes off

This article was written by David Shabotinsky, a Financial Analyst at I Know First, and enrolled at an undergraduate Finance program at the Interdisciplinary Center, Herzliya.

BIDU Stock Price


  • Baidu Inc. still market leader though has company has been battered past few months
  • Investment into other avenues of growth such as AI makes Baidu Inc. great for 2017
  • Fundamental analysis shows Baidu Inc. continues to remain great value play
  • Baidu Inc. is great buying opportunity looking forward for the over the long-run as a result of its market leadership


Baidu Inc. (BIDU), a Chinese search engine giant, often referred to as China’s Google, has a similar businesses model that of Alphabet Inc. Through algorithmic search optimization, the firm enables users to easily have access to enterprise search, news MP3, images, and more. It as well offers a Chinese platform, which is its core strength, in understanding the Chinese culture better than similar outside firms. The as well offer voice assistance and navigation searches.

BIDU Stock Price

It continues to maintain the largest share in the Chinese digital advertising market, however, recent government regulations along with an increase in competition from prominent firms like Alibaba have begun to hamper expansion efforts by Baidu. Additionally, earlier in May 2016 there were reports of a Chinese student dying from a medical advertisement, which had hurt Baidu’s reputation badly. As a result, they have begun implementing various cost reduction efforts and placing higher ad restrictions for their search engine. The stock has as well already suffered since and the market has already factored in the loss of all these negative aspects today. The company forecasting lower-than-expected sales of 18.04 billion ($2.7 billion) to 18.58 billion yuan in the third quarter. It continues to recover as investors realize its efforts to diversify and implement new measures to regain public trust.

Leadership In Chinese Market

 As a result of increasing competition from other Chinese tech giants such as Alibaba, new harsher regulation, and poor PR, the firm does expect Q4 earnings to go down due to fall in revenues. However, in the long term, BIDU is taking immense steps to diversify away from its original business model of digital advertising which makes the core of its revenue model. Many investors fail to realize that unlike other firms similar to Baidu Inc., they have still even begun to scratch the surface of their full potential in the market. Its main competitive advantages not only revolve around that understanding the Chinese market better than outside firms, rather it revolves around big data analytics and its technological innovation in using it’s understand of Chinese culture. In an outlook for 2017 moving forward, they have the potential to tap into other revenue models, such as mobile payments, which they have begun by though investing heavily in the Brazilian market in startups. Their billions of dollars in annual sales, come from being able to capture the Chinese market, that has about one-third of the world’s population. If they can open other avenues of revenue, through horizontal integration, they will be able to further capitalize on these efforts.


Path Towards Greater AI Investment

The main area that they have begun to explore is AI technology, specifically through a new partnership with NVIDIA, to be able to create self-driving cars. The CEO has even proclaimed that the firms next major driver will come from AI-based technology. Additionally, their Chief Financial Officer Jennifer Li, in a recent interview, explained that, “AI, it’s a technology. And technology itself, until you put it into real applications, into real businesses where it can really transform industries, it’s not really of real business value, however, many new business opportunities are going to come out of these core competencies.” This new type of technology through their partnership with NVIDIA will combine Baidu’s immense mapping and cloud technologies with the chipmaker NIVIDIA’s autonomous computing platform. The vehicle will be powered by Baidu/NVDA’s cloud-to-vehicle technology. However, the best part of this new technology is that this will be the service-led strategy, as they will be making this available to Chinese car manufacturers. Instead of being like other American corporations that are partnering with auto manufacturers or attempting to forward integrate the process, BIDU will be to have high margins from not having to invest in these large capital structures. It understands that its power lies in its AI-based technology that it has heavily been investing in and thus will capitalize on this front.

BIDU Stock Price

If they can do this over the next year, Baidu Inc. will have an upper hand on the Chinese market for self-driving cars, and really be able to take over the market through big data analytics and AI technology in a country that makes up a third of the world’s population.

Although many firms around the world have begun investing heavily into this type of endeavor, especially in the U.S., the Chinese market is much more of a viable target, since more Chinese citizens would be willing to have autonomous cars, 75%, as opposed to only 50% of Americans, which is found in the 2015 world economic forum. Additionally, Boston Consulting Group (BCG), has found that over the next 20 years China will probably become the world’s largest market for autonomous features. Therefore, this head start is a great step in the right direction. China as well is moving into more of a service and consumer oriented country, and this will as well help the firm. BAIDU doesn’t want to partner with any particular automaker rather sell this type of technology, as well attempt to release self-driving taxis around the country. As Uber has given up in China, BAIDU can be much more confident that international firms will struggle behind BIDU in their home market.

The firm has as well recently launched a $200 million venture capital fund focusing on AI technology, and as LI has explained it does have first-mover advantage in China, the market it will continue to focus on, as its advantages revolve around this market.Being able to capitalize on a market that has about 1/3 of the world’s population will immensely help long-term growth, and allow it to dominate the Asian market.

The path to investing in AI-based technology may lead to a greater return for Baidu Inc. can clearly help it divest away from its main business model and integrate other revenue models as well. Many prominent experts on this subject as well explain the future revolving around Artificial Intelligence and big data analytics. In a recent interview, I Know First co-found Dr. Roitman, explained that “Artificial Intelligence or AI has already begun changing not only the way we live but also the way we behave in our own subcultures. It is used throughout our daily lives whether we realize it or not. Big firms such as Alphabet and Facebook use AI when developing ad targeting methods, as well as ways to attract more users towards a platform. Big data as well is increasingly used even more by any company that has adapted to contemporary technology.” I Know First, Ltd. is a is a leading financial technology company that provides daily investment forecasts based on an advanced, adaptable, self-learning algorithm. The company’s algorithm predicts over 3,000 securities (and growing) with capabilities to discover patterns in large sets of historical stock market data. Recently, the company had written an article explaining how Artificial Intelligence is changing the future of the businesses world. Therefore, Baidu’s investment major push into this area is a push into the right direction.

Fundamental Value Analysis

Though many investors may be pleased by the divestment efforts of Baidu Inc., other may be more interested in the fundamental aspect of BIDU. Using indicators from the father of value investing, Benjamin Graham, BIDU is still a great investment opportunity for the long-term. The main five indicators that explain this value-play are sales, P/E ratio, Long-Term EPS growth, long-term debt size, and current ratio.

With regards to sales, Graham had explained that a firm’s annual sales should larger than $340 million. Baidu’s annual sales, based off of trailing 12 month’s sales, is $10.67 billion, providing a great buffer for long-term investors should anything bad happen to BIDU for a bit. Their current ratio, also known as a liquidity ratio is found by dividing a firm’s current assets over their current liabilities, both found on the balance sheet. Graham had explained that one should look for a firm, who’s current ratio is greater or equal to 2, which would indicate a firm is capable of paying both it’s short-term and long-term debt obligations. Baidu’s current ratio is 3.06, indicating significant strength to pay off debts. Their long-term debt obligations in relation to their net current assets, is smaller, again indicating a financially secure firm. Their net current assets are approximate $8.58 billion, while their long-term debt obligations are about $5.69 billion. Both these two indicators are especially important for equity investors, who also hold residual claims should a company befall bankruptcy. Therefore, ensuring financial strength towards shareholders allows investors to have a more positive outlook on the firm.

Furthermore, using one of the most popular values investing ratios, P/E, it as well indicates the firm being undervalued. Baidu’s P/E ratio currently stands at 13.24, based on 12-month trailing period, from June 2016. In comparison Alphabet Inc. and Alibaba, have P/E ratios of 30.52 and 36.12, respectively. Therefore, BIDU’s stock price is selling at a discount in relations to its earnings, or how much investors are willing to pay per $1 of current earnings.


Although some may explain that the low P/E multiple indicates that investors have low growth expectations, combining the other four indicators as well shows that this firm is a secure one which is undervalued. Additionally, looking at their income statement, one can see that both their revenues and net income have both been growing for the past few years, 2012-2015. Therefore, the company is performing well from the corporate side, and as indicated from the different investment routes, they still have many avenues of growth ahead.


Though the Baidu had suffered a fall in share price in 2016, the 2017 outlook for the firm is still bullish. Their investment efforts into other areas will allow them to take their position in China to a new level, coming at a time when China is growing into a more service and consumer-oriented nation. While other large firms such as Alphabet Inc. and Apple Inc. are investing heavily technology to allow for self-driving cars and other AI-based technology as well. Furthermore, the firm is still a great investment just from value alone, as explained using Benjamin Graham’s investment techniques. Income growth can offset any loss that they encounter through the past few harsh months they have had. Investors should wait in a few months as the market will begin to realize Baidu’s investment efforts, and after they regain the public trust.

Furthermore, my bullish outlook on Baidu Inc. resonates with the I Know First state of the art algorithm. For the 1 year forecasted length, the algorithm has a 0.47 predictability indicator along with a 356.69 signal strength. To find out more about the algorithm, click here.


I Know First Past Success With Baidu Inc.

I Know First has been bullish on BIDU throughout past forecasts. Since then, BIDU has achieved over a 13.17% return to date.

Baidu Inc.

This forecast was sent out to I Know First subscribers on June 20th, 2016. To subscribe now click here.