Deutsche Bank upgraded Baidu to a “Buy” rating this week, stating that the company’s push in artificial intelligence is now strong enough to drive its next stage of growth, according to CNBC.
Analyst Leo Chiang raised his price target on the stock to $156 from $88, which implies about 23% upside from current levels. For a little more context, you should know that Baidu stock is up by 51% year-to-date.
Leo said the company is no longer just an internet search provider. He wrote that:
“Baidu has established a set of leading AI businesses spanning cloud computing, robotaxis, intelligent search, and AI chips.”
Leo said these units are becoming the main engine of the company’s revenue going forward, identifying four business areas he believes are critical to that growth. See them below:
Baidu’s AI Cloud, which offers companies full-stack AI systems with cost efficiency as a main selling point.
Baidu’s Apollo Go robotaxi program, which Leo described as already operating at a global scale.
Baidu’s new AI-driven search model which changes how users receive information by leaning on generative AI instead of traditional link results.
Kunlunxin, the in-house AI chip unit that Leo said is “well-positioned to capture the surging of AI capital expenditure.” He said this chip division may drive substantial upside as more companies increase spending on AI hardware.
Advertising slowdown hits near-term revenue
In the short term, Leo expects advertising challenges to reduce monetization, ultimately causing total revenue to decline by 3% year over year in the fiscal year 2025. In juxtaposition, he expects cloud revenue to increase by 23% on a yearly basis this fiscal year.
Leo commented that fiscal 2026 and beyond could show a rebound in total revenue once advertising levels stabilize. He pointed to improvements expected from digital humans, AI-based search monetization, stronger cloud contracts, higher AI chip shipments, and eventual profit returns from the robotaxi network when cities approve paid driverless service zones.
Leo pointed out that the robotaxi program expanding its global footprint introduces the company to new regulatory environments, new infrastructure layouts, and new competition, but he said the platform is already proving its operational readiness.
AI spending surges amid broader uncertainty in stock markets
The Baidu upgrade comes at a time when Amazon, Microsoft, and Google have reported higher capital expenditures for AI infrastructure in their Q3 earnings report, making investors and traders alike concerned over whether returns will appear fast enough to justify the scale of investment.
Earlier this week, Goldman Sachs CEO David Solomon warned that the equity markets could fall 10% to 20% within the next two years, saying the market may be overestimating the certainty of long-term AI profits.
Bank of England Governor Andrew Bailey said in an interview that while AI could boost productivity, there is still uncertainty around future earnings streams, which makes pricing assets difficult. “We have to be very alert to these risks.”
In Asia, SoftBank Group, which is involved across AI infrastructure and semiconductor investment, has lost about $50 billion in value over the last week. Its shares continued to decline after a steep drop earlier in the week.
On Tuesday, it was reported that Scion Asset Management, led by Michael Burry, had opened short positions against Palantir Technologies and Nvidia, prompting a response from Palantir CEO Alex Karp.
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