Baidu Gains from Trade War: AI Chip Stock Rises Amid Restrictions

Baidu: An Unlikely Winner in the Tariff Trade War

Baidu (BIDU) has seen a notable stock rally recently, fueled by positive analyst sentiment and growing investor interest. Interestingly, despite its recent sluggish growth, Baidu is emerging as an unexpected beneficiary of the tariff trade war, specifically the import restrictions on advanced artificial intelligence (AI) chips into China.

Cathie Wood, the founder and CEO of Ark Invest, made a move she hasn't made in nearly four months: she increased her existing stake in Baidu. This reinforces the belief that now is a good time to buy shares in China's leading search engine operator.

Why Now?

With restrictions on AI chip imports in place, Baidu finds itself in a unique position. The company already has a strong foundation in AI, and its development of its own Kunlun AI chips puts it at the forefront of Chinese companies capable of meeting the growing domestic demand for these vital technologies.

Previously, companies like Nvidia relied on the Chinese market for a significant portion of their revenue. However, with the new restrictions, these companies are facing difficulties accessing the Chinese market, opening the door for Baidu to strengthen its position and increase its market share.

Leading in AI

Baidu is considered a leader in AI in China, with over 5,700 AI-related patent applications, a figure that surpasses any other company in the country. Although being early in this field is not always enough, Baidu's focus on AI gives it a significant competitive advantage.

Baidu's AI cloud computing business saw revenue growth of 34% year-over-year in the last quarter, but this was not enough to lift the company's overall results into positive territory. However, with the new restrictions on chip imports, this sector could see faster growth in the near future.

Relatively Low Valuation

Despite the recent rise in Baidu's stock, it is still undervalued. The stock is trading at less than 13 times trailing adjusted earnings, and analysts expect earnings growth to return starting next year. This makes Baidu an attractive option for investors looking for growth stocks at reasonable prices.

Baidu's Future

Baidu has the potential to become a major player in the field of AI globally. As technology continues to evolve and its importance grows in various industries, Baidu can leverage its strong position in the Chinese market to expand its business and reach new markets.

The current situation represents a golden opportunity for Baidu to strengthen its position as a leading AI company in China. With government support and increasing demand for domestic chips, Baidu can achieve significant growth in the coming years. However, it is important to note that investing in stocks carries risks, and investors should do their own research before making any decisions.