Baidu (BIDU), the $45 billion provider of search, advertising and cloud services often referred to as the "Google of China," has always been a leader in artificial intelligence for its nation as well.

Under the leadership of Robin Li, Baidu has orchestrated key government partnerships to utilize technology parks in Beijing and Shanghai for the development of autonomous driving.

Now that ChatGPT is all the rage, it's not surprising that Li & Co. had already been working on their own chatter-bot for advanced research, simulation, and content creation.

Here's what my colleague Andrew Rocco wrote in mid-March as a new venture was set to launch...

Breaking into Artificial Intelligence

Open AI's artificial intelligence chatbot called ChatGPT launched in 2022. Though artificial intelligence has been around for years, ChatGPT is the first AI chatbot to go viral. The service reached 100 million daily active users just two months after launch and already has a valuation of around $30 billion and investments from notable tech juggernauts such as Microsoft (MSFT).

Now, Baidu is looking to follow suit and drive growth through a chatbot dubbed "Ernie Bot," which the company announced last month. With the announcement of Ernie Bot, Baidu is the front runner in the Chinese race to make a ChatGPT competitor and is positioning itself well to do so. In Baidu's last earnings call, management underscored the importance of AI for BIDU by saying:

"2022 was a challenging year, but we used this period to prepare the company for better times. In 2023, we believe we have a clear path to reaccelerate our revenue growth, and we are now well positioned to make use of the opportunities that China’s economic recovery offers us," said Robin Li, Co-founder and CEO of Baidu. "With our long-term investments in AI, we are poised to capitalize on the imminent inflection point in AI, unlocking exciting new opportunities across our entire business portfolio -- from mobile ecosystem to AI Cloud, autonomous driving, smart devices, and beyond."

Analysts Raise Estimates and Price Targets

When Andrew wrote about BIDU, upward EPS revisions from Wall Street had already made the stock a Zacks #1 Rank, taking full year 2023 growth to a 35% advance.

And 2024 estimates are already projecting 25%+ growth, making the stock trade under a 10X P/E. Meanwhile, revenue growth remains robust at 10% for both this year and next, with 2024 projected to eclipse $22 billion.

What still surprises me is the discount on a price-to-sales basis as most of US-based software and semiconductor companies trade between 5X and 15X revenues: Baidu trades at barely over 2 times sales.

In March, using Zacks Research System (ZRS) institutional data, Andrew noted "From a price-to-sales perspective, Baidu's valuation is nearly the lowest it has been since inception."

While the launch of Ernie has been given a lukewarm reception thus far, we have seen before that Baidu always remains a key innovator in China and will be a difference-maker with this new AI technology that enhances their search, user experience, and development engines. Here were some recent analyst reactions...

Baidu price target raised to $215 from $167 at Loop Capital: Firm remains bullish on Baidu, and sees structural forces improving Baidu's position among ad platforms, signs of improvement across key verticals and strong initial demand from enterprise developers for new AI solutions.

Baidu price target raised to $215 from $200 at Daiwa: Analysts tested the company's ERNIE Bot AI for two weeks. After having run a comparative test of ERNIE Bot, GPT-4 and ChatGPT, the firm says its view is that ERNIE Bot ranks below GPT-4 but is comparable to ChatGPT and it also thinks ERNIE Bot generates better Chinese language output than the other two. "This performance is encouraging and exceeded our expectations."

Bottom line for BIDU

While the unknowns of China scare many investors away -- and there is new controversy with lawsuits against the Apple app store for fake Ernie bots and worries that Washington vectors against TikTok could spill over -- the growth/value equation right now for the premier AI/cloud company of China is so attractive as to make accumulating shares an exercise in investor intelligence.

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