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Why Morgan Stanley thinks it's time to buy Baidu
Baidu's full-stack AI capabilities can lead to success
Morgan Stanley analyst Gary Yu has upgraded shares of Baidu to overweight from equal weight, with a raised price target of $190, implying a 30.9% upside from Friday's final share price. According to Yu, Baidu should be in a position to win owing to the shift of offline spending in 2022 to online by 2030, led by its full-stack AI capabilities, commercial use cases, investment in AI development, and willingness to continue research.
China's AI evolution is at an inflection point
"We believe China's AI evolution is at an inflection point, and BIDU is the best play to capture the US$7.4tn AI internet opportunity," said Yu. Baidu is the pure AI player among internet peers, proving its place in the AI world by extending technology to intelligent driving, with partnerships with manufacturers in the autonomous driving space. Yu said that Baidu has attracted more than 200,000 companies to its cloud platform so far, and AI technology would help drive demand going forward.
Relatively lower regulatory hurdles give Baidu an edge
Since it was the first to launch a product similar to ChatGPT in China and an early investor in AI since 2010, Baidu has been a frontrunner in the AI industry and owns the most extensive set of generic proprietary search data as the largest search engine in China. Baidu's relatively lower regulatory hurdles and early advantage should help the company lead the pack in the Chinese AI industry.
Potential regulatory approval in 2H 2021 and near-term catalysts
Yu said that potential regulatory approval in the second half of the year, which could subsequently lead to instant and mass adoption of AI-generated content, could be a near-term catalyst. This adoption could then result in monetization opportunities for the company. Yu added that investors would likely focus on companies with applications and infrastructure for AI technology after having focused on hardware, semiconductors, and A-shares in the space. This focus could lead to a re-rating of Chinese internet companies.
Baidu is a sound investment based on its full-stack AI capabilities, its dominance in the Chinese search engine market, and early adoption of AI technology. Regulatory approval in the second half of 2021 may serve as a catalyst for the company to monetize its AI capabilities.
The news of Baidu's success offers an exciting opportunity for new businesses in the AI and online market space to grow in China. With potential regulatory approval in the second half of 2021, Baidu's AI capabilities could become a catalyst for mass adoption of AI-generated content, which could unlock numerous monetization opportunities for the company. New businesses that are focused on AI development and have a presence on Baidu's cloud platform could benefit from this adoption and grow with Baidu. Moreover, Baidu's dominance in the Chinese search engine market, as the largest search engine in China, combined with its full-stack AI capabilities and commercial use cases creates an opportunity for new businesses to partner with Baidu. Such businesses could help broaden Baidu's AI technology and grow together while capitalizing on untapped online market opportunities. The focus on the Chinese internet companies could shift from hardware, semiconductors, and A-shares towards companies with applications and infrastructure for AI technology, creating a favorable environment for new businesses with aligned interests to flourish.
