Analysts give this Chinese tech stock 40% upside — but one CIO warns it could be a ‘one trick pony’
Chinese tech company Baidu garnered interest among investors following a 28% year-to-date drop in its share price — but one market watcher is unimpressed. “I think you might have a short-term rally. But that’s not really about Baidu — it’s about, sort of, the broad based rally and Baidu being a technology stock [is] naturally more volatile,” Jason Hsu, founder and chief investment officer of Rayliant Global Advisors, told CNBC’s Pro Talks last week. Baidu is China’s primary internet search engine operator. The company — which boasts similar functions as Alphabet ‘s Google — also offers robotaxis and AI-powered tools such as a ChatGPT-like Ernie Bot . Hsu’s comments on Baidu come as Chinese markets have been in the spotlight following the government’s announcement of stimulus measures in the hopes of reviving the nation’s ailing economy. The blue-chip CSI 300 index has gained nearly 17% year-to-date as of Oct. 25 while Hong Kong’s Hang Seng index is up around 22%. For comparison, the Nasdaq Composite is up around 25.4% year-to-date, while the benchmark S & P 500 index is around 22.5% higher. China’s surging stock market has tipped some hedge funds and strategists to favor the country. However, Hsu — who considers himself a contrarian value investor — has been long and overweight on China for a while. The portfolio manager oversees the Rayliant Quantamental China Equity ETF , which is up around 21.6% so far this year. Unlike Hsu, not everyone is so negative about Baidu. According to FactSet data, of the 46 analysts covering the stock, 35 give it a “buy” or “overweight” rating, at an average price target is $125.41. This gives the stock around 40.1% potential upside. BIDU YTD mountain Year-to-date shares in Baidu Among the reasons for Hsu’s skepticism, is that Baidu as an internet search engine “is a one trick pony.” It “doesn’t have the diversified appeal of Google which is why the two command such different price-to-earnings ratios,” he explained. Baidu is trading at 8.2 times forward price-to-earnings while that for Alphabet is 21.2 times. Hsu also believes that Baidu has “largely faded away from its AI capabilities,” with many of its AI-powered services not translating to profit streams for the company. “Baidu was riding high for a short while but … the AI story may have sunset on Baidu and it will go back to being a one trick pony.” “There’s probably a deeper issue which is, they’re in a niche space, and they really haven’t deepened capabilities beyond the search space which they dominate, and everything else is sort of based on their brand, rather than on a capability that they already have, and that brand extension without real capability supported really hasn’t panned out much,” he added.
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