Finance

Baidu vs Alibaba: Which big Chinese tech stock is the best?


In this work, I Assessing two large-cap Chinese tech stocksBaidu (NASDAQ: Baidu) and Alibaba (New York Stock Exchange: Alibaba), use TipRanks’ comparison tool to see which one is better. A closer look reveals that both have neutral views, although if the unanswered questions disappear, there will be a clear winner.

China’s Baidu is one of the world’s largest artificial intelligence and Internet companies, while China’s Alibaba focuses on e-commerce, retail and Internet technology. Although the two companies do not compete directly, both are large technology companies headquartered in China, with Baidu often referred to as “China’s Google” and Alibaba as “China’s Amazon.”

Baidu’s share price fell 20% last year After falling 13% over the past three months. In fact, on Friday alone, Baidu’s stock price plummeted 7%, its biggest drop in more than a year (more on that below). at the same time, Alibaba shares plunged 39% last yearwhich fell 16% in the past three months.

While the two companies had very different declines for the year, their similar recent declines stemmed from concerns about China.

U.S.-listed Chinese stocks have generally been falling in recent months as relations with China soured, as evidenced by the Invesco Golden Dragon China ETF.NASDAQ: PGJThe ETF tracks the Nasdaq Golden Dragon index of U.S.-listed Chinese stocks, which has fallen 23% last year and 8% in the past three months.

In addition, Goldman Sachs (NYSE:GS) said in early December that China and broader Asian emerging markets were among the regions with the largest net selling by hedge funds in November. In fact, the Chinese stock market saw its fourth consecutive month of net outflows from long/short equity managers, and the ninth month of overall net outflows in 2023.

As such, a number of China-specific issues do play a key role in both companies’ ratings, although a closer look at company-specific factors reveals a clear winner.

Baidu (NASDAQ: BIDU)

Baidu’s price-to-earnings ratio is 12.6, a significant discount to its average price-to-earnings ratio of 24.6 since March 2019. Recent reports link its Ernie AI platform to Chinese military research The pressure on Baidu stock is likely to continue for some time, so a neutral view seems appropriate for now.

Baidu claims that its Ernie AI bot has similar functionality to OpenAI’s ChatGPT, the first generative AI bot capable of producing almost human-like responses to queries. South China Morning Post According to reports, a university affiliated with the Chinese military responsible for cyber warfare has used Baidu’s Ernie to test its artificial intelligence system.

On Monday, the Chinese search giant Denies any partnership or affiliation with the university And claimed not to understand the relevant research. However, the report raised concerns that the United States may impose sanctions on Chinese companies aimed at curbing such partnerships with the Chinese military.

Even without any sanctions, the South China Morning Post report could further escalate tensions between China and the United States, which are already running high.

A paper by researchers from the Chinese People’s Liberation Army’s Strategic Support Force reportedly outlines theoretical scenarios for the use of artificial intelligence in conflicts between countries, including the United States and Libya. The researchers also reportedly asked Ernie hypothetical questions and explained how artificial intelligence could be used to determine the best deployment of military forces.

While it’s too early to tell whether Washington will retaliate against Baidu or to assess the report’s long-term impact, Baidu’s long-term share price returns also suggest limited near-term upside. Baidu’s stock price has plummeted 56% in the past year and has been in the red for three years. It has declined by 36% and 37% in the past five and ten years respectively.

What is the target price for Baidu stock?

Baidu has a Strong Buy consensus rating based on 17 Buy, 1 Hold, and 0 Sell ratings over the past three months. The stock price is $169.21. Baidu average stock price target This implies an upside potential of 61.9%.

Alibaba (NYSE: BABA)

Alibaba trades at a price-to-earnings ratio of 10 times, compared with its five-year average price-to-earnings ratio of 35.2 times, a significant discount. However, over the longer term, China-related issues weigh heavily on the stock’s share price, suggesting a neutral view may emerge. Appropriate – waiting for some light at the end of the tunnel.

Previously, the most interesting part of Alibaba’s stock bull run was its plan to spin off six business units into independent companies, which could unlock significant shareholder value. However, it looks like most of the plans won’t come to fruition.

Alibaba’s stock price plummeted in November after it declared bankruptcy. Abandoning plans to spin off cloud business Due to the expansion of restrictions on computer chip exports by the United States, the company had previously suspended its plan to list the Hema chain. However, the listing of Cainiao’s smart logistics business in Hong Kong is progressing.

While there is significant value to be unlocked for shareholders through these spin-offs, the elimination of two of the six businesses, including the all-important cloud business, is cause for concern. Furthermore, taking a longer-term perspective, Alibaba shares have plummeted 71% over the past three years and are down 53% over the past year and 19% since September 2014.

So until the Chinese economy starts to show real signs of recovery and some other China-related issues are resolved, or until there is more clarity on the planned spin-off, waiting and watching seems to be the best option.

What’s the target price for Alibaba stock?

Alibaba has a Strong Buy consensus rating based on 18 Buy, 2 Hold, and 0 Sell ratings over the past three months. The stock price is $120.85. Alibaba average share price target That means 74% upside potential.

Conclusion: Neutral on Baidu and Alibaba

While both Baidu and Alibaba gain neutral views over potential problems in China, Alibaba is the clear winner, at least for the time being. In essence, Baidu’s concerns involving the Chinese military look more pressing. At the same time, Alibaba can still unlock significant value for shareholders in a variety of ways. Derivatives – although two of the six are definitely closed.

However, if the issues are resolved or Alibaba explicitly cancels all remaining spinoffs, the balance between the two Chinese stocks could suddenly shift, making Baidu the most popular stock.

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