TLDR
- Baidu stock surged nearly 16% in Hong Kong and 8% in US trading on Wednesday after Arete Research upgraded the stock from sell to buy
- The upgrade cited Baidu’s AI chip business and cloud computing potential to offset weakness in traditional advertising revenue
- Baidu secured a major partnership with China Merchants Group for AI applications and announced a 4.4 billion yuan bond offering to fund AI investments
- The company’s Kunlun chip unit landed a big order from China Mobile for AI servers, positioning Baidu to compete with AMD and Nvidia
- Baidu stock has gained 59% year-to-date and jumped 80% from 2024 lows as investors bet on the company’s AI transformation
Baidu shares climbed nearly 16% in Hong Kong trading on Wednesday as the Chinese search giant’s push into artificial intelligence won over skeptical analysts. The company’s American depositary receipts rose almost 8% overnight in U.S. markets.
The rally came after Arete Research Services upgraded Baidu to buy from sell. The analysts pointed to the company’s AI chip business and cloud computing operations as key growth drivers that could offset traditional advertising struggles.
Baidu has been pouring money into its AI ecosystem for months. The company is designing its own semiconductors to power large language models and reduce dependence on Nvidia chips, which face U.S. export restrictions.
The Beijing-based tech company’s Kunlun chip unit recently secured a major order from China Mobile. The state-owned telecom will use Baidu’s processors to power AI servers across its network.
This hardware push puts Baidu in direct competition with AMD and Nvidia in China’s AI chip market. The company hopes its homegrown technology will give it an edge as Beijing pushes for tech self-reliance.
Advertising Revenue Drops But AI Partnerships Grow
Baidu’s traditional search advertising business has taken a hit as China’s economy slows. Second-quarter revenue fell 4% to 32.7 billion yuan ($4.5 billion) while operating income dropped 45% to $457 million.
The company’s advertising segment typically mirrors China’s economic health. Recent data showed retail sales and industrial production both declined in August, creating headwinds for ad spending.
But Baidu is betting big that AI will more than make up the difference. The company announced a partnership with China Merchants Group this week focused on large language models and AI agents for industrial applications.
Baidu also unveiled its latest Ernie X 1.1 reasoning model at a recent developer conference. The company claims the new AI system outperforms rivals like DeepSeek in benchmark tests.
The search giant isn’t just building software either. Its Apollo Go autonomous vehicle division struck deals with Uber and Lyft to deploy robotaxi technology in international markets.
Massive Capital Raises Fund AI Ambitions
Baidu announced a 4.4 billion yuan ($56.2 million) offshore bond offering on Tuesday to fund its AI transformation. This follows a $2 billion bond issuance earlier in 2024.
The company joins rivals like Tencent in tapping debt markets for AI investment capital. The scale of these fundraising efforts shows how much money Chinese tech giants are willing to spend on the AI race.
Analysts expect Baidu’s advertising weakness to continue in the near term. Revenue estimates for the current quarter call for a 7.7% year-over-year decline to 30.9 billion yuan.
Full-year revenue is projected to fall 2.5% to 129.79 billion yuan. But analysts see a turnaround coming in 2026, with revenue expected to rebound to 136.33 billion yuan.
Baidu stock has gained 59% this year and jumped 80% from its 2024 lows. The shares hit their highest level since September 2023 during Wednesday’s session.
The stock surge comes as Chinese tech companies broadly rally. Tencent shares have climbed 82% from year-to-date lows while Alibaba has gained 106% from January’s bottom.
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