Goldman Sachs analyst Lincoln Kong remains bullish on Baidu, Inc (BIDU), maintaining a Buy rating with a price target of $129. This positive outlook follows an NDR meeting with Baidu’s head of investor relations on August 23.
While Kong acknowledges near-term pressure on advertising revenue due to Baidu’s ongoing AI search renovation initiatives, he sees these changes as strategically important for the long-term success of the company. Baidu is actively reinventing its traditional search using AI capabilities, resulting in a more enhanced user experience. This initiative has already seen significant progress, with 18% of search results now incorporating AI-generated content, a notable increase from 11% in mid-May. Furthermore, the company has witnessed a positive response from advertisers, with over 16,000 adopting Ernie Agents, leading to an average sales conversion improvement of 20%-30%.
Beyond search, Baidu’s AI cloud segment continues to show strong growth, fueled by smart transportation initiatives and contributions from AIGC-related revenue. Kong expects this trend to continue, with the cloud segment accelerating in the coming quarters. In the autonomous driving sector, Baidu’s Robotaxi service is moving closer to scalable adoption, with the company anticipating a breakeven in unit economics.
Despite near-term headwinds in ad revenue, Kong highlights Baidu’s disciplined cost and expenditure control, which will likely contribute to maintaining a stable margin. This stability is further supported by the growing cloud business and the narrowing losses in autonomous driving. Kong projects a third-quarter revenue of 33.95 billion Chinese Yuan.
Overall, while Baidu faces short-term challenges, Kong remains optimistic about the company’s future, driven by its strong investments in AI and its commitment to innovation. These factors position Baidu for continued growth and success in the long run.
