Chinese tech giant Baidu stock (NASADAQ:BIDU) is growing significantly while its profitability is rapidly increasing. Moreover, the firm is a leader in both artificial intelligence and driverless vehicles. Over the long term, these businesses should cumulatively tremendously boost Baidu’s top and bottom lines, lighting a fire under Baidu stock. Also importantly is that, given the company’s impressive financial results and strong outlook, the valuation of the shares is extremely low.
Baidu owns and operates China’s leading internet search engine. The latter business currently generates most of its revenue and profits.
Impressive Q4 Results
Baidu’s revenue jumped 9% in Q4 versus the same period a year earlier to $19 billion, while its net income, excluding certain items, soared 39% year-over-year to $1.09 billion. Also noteworthy is that the adjusted net income of its core business advanced a very strong 53% YOY to $1.06 billion.
The result show that Baidu’s search engine business is performing quite well, growing quickly, and becoming significantly more profitable.
Baidu Is a Leader in AI
Baidu’s AI bot, Ernie, had over 100 million users as of the end of last year, and well-respected U.S. research firm IDC has reported that Ernie is better than any competing product in China when it comes to “algorithms, industry coverage, development tools and ecosystem,” Barron’s reported last October. As a result, Baidu’s contention that Ernie is on par with a leading American AI chatbot, ChatGPT, has some credibility.
Meanwhile, Baidu’s prowess in AI should drive up the top and bottom lines of its cloud business. That phenomenon may already appears to be occurring as Baidu stock reported that its “non-online marketing revenue” climbed 9% YOY to $1.17 billion in Q4, with the increase being “mainly driven by (its) AI Cloud business.
Also noteworthy is that Citron Research in February wrote that Baidu could be “the most underappreciated name in AI,” while Bank of America is also upbeat on the firm’s AI capabilities and wrote that the technology should start moving the needle for Baidu stock in 2024.
There are reports that Apple (NASDAQ:AAPL) may began using Baidu’s AI on its products in China. Although such a deal is not supposed to include significant payments by Apple to Baidu, such an agreement would likely greatly boost the reputation and credibility of Baidu’s AI offerings, making them much more popular.
As a result, such a collaboration between Apple and Baidu would likely indirectly generate a meaningful increase in Baidu’s revenue and profit, leading to significant gains by Baidu stock.
Baidu’s Autonomous Vehicle Business Has Tremendous Potential
On the driverless vehicle front, Baidu provided roughly 839,000 rides in Q4, representing an impressive 49% YOY surge. In the Chinese city of Wuhan, 45% of the rides provided were “fully autonomous,” i.e. nearly half of the rides there did not include a safety driver. Moreover, last month Baidu began providing “24/7 autonomous driving service in selected areas of Wuhan.” As a result, BIDU became the first company in China to offer such a service.
Over the longer term, I’m confident that this business will generate needle-moving revenue and profits for Baidu and Baidu stock. In addition to greatly expanding the number of robotaxi rides that it offers, Baidu can start charging much more for each ride as consumers become more comfortable with using autonomous vehicles. Additionally, the firm can license its driverless technology to automakers and truck operators for use in their vehicles.
The Valuation of Baidu Stock Is Extremely Attractive
Despite all of Baidu’s strong, positive catalysts, its impressive growth and rapidly increasng profits, its forward price-earnings ratio is just 9.8 times, while its enterprise value/revenue ratio is a bargain-basement 0.18 times. There’s no doubt that BIDU represents a real bargain at its current levels.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines