Baidu, Inc. BIDU, China's leading search engine provider, has seen its shares climb 12.6% over the past six months, outperforming the Zacks Computer and Technology sector’s growth of 9.3%. This performance comes as the company continues its strategic transformation from an Internet-centric business to an AI-focused technology leader. The question for investors is whether this momentum represents a buying opportunity in 2025.

In its recent fourth quarter and fiscal 2024 earnings report, Baidu demonstrated how its AI initiatives are beginning to bear fruit. While total revenues for fourth-quarter 2024 declined slightly by 2% year over year to RMB34.1 billion ($4.68 billion), Baidu Core revenues showed a modest 1% increase, reaching RMB27.7 billion ($3.8 billion).

The standout performer was Baidu's AI Cloud business, which delivered a robust 26% year-over-year growth in the fourth quarter. CEO Robin Li highlighted that this acceleration helped offset softness in the company's traditional online marketing business, which declined 7% compared with the previous year.

6-Months Performance

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Strategic AI Investments Show Promise

Baidu's long-term AI strategy appears to be gaining meaningful traction. The company reports that its ERNIE foundation model handled approximately 1.65 billion API calls daily in December 2024, with external API calls growing an impressive 178% quarter over quarter.

The company has made a significant strategic decision to open-source its upcoming ERNIE 4.5 series and make ERNIE Bot free for end users. Management believes this move will expand market awareness of ERNIE's capabilities and drive broader adoption across industries.

Baidu has successfully leveraged its AI capabilities to transform its consumer-facing products. For example, Baidu Wenku's AI-enabled features reached 94 million monthly active users in December 2024, representing a 216% year-over-year increase. In search, the company reports that 22% of search result pages now contain AI-generated content, with users exposed to this content demonstrating higher engagement and retention.

Autonomous Driving Gains Momentum

Another promising area is Baidu's autonomous ride-hailing service, Apollo Go. The service provided more than 1.1 million rides in fourth-quarter 2024, up 36% year over year. In January 2025, Apollo Go surpassed nine million total accumulated rides and achieved 100% fully driverless operations across China.

The company expanded its footprint by securing permits to conduct autonomous driving testing in Hong Kong, marking its first entry into a right-hand drive market. This achievement potentially opens doors for expansion into other markets with similar driving setups.

Competitive Landscape and Valuation

Despite Baidu's strong positioning in AI and autonomous driving, the company faces significant competitive challenges. In the AI cloud market, Alibaba BABA and Tencent TCEHY maintain advantages through their extensive enterprise relationships and substantial financial resources.

The autonomous driving sector is becoming increasingly competitive, with emerging players like Xpeng and WeRide gaining momentum that could potentially challenge Baidu's leadership position.

From a valuation perspective, BIDU currently trades at a forward 12-month P/S ratio of 1.65x, significantly lower than the Zacks Internet - Services industry average of 5.57x. This discounted valuation reflects investor expectations for Baidu's AI-driven growth potential.

BIDU’s P/S F12M Ratio Depicts Discounted Valuation

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Financial Position Remains Strong

Baidu maintains a solid financial foundation to support its AI investments. As of Dec. 31, 2024, the company held RMB139.1 billion ($19.06 billion) in cash, cash equivalents, restricted cash, and short-term investments. Management has also demonstrated a commitment to shareholder returns, repurchasing more than $1 billion of shares since the beginning of 2024, with plans to accelerate the buyback program moving forward.

The Zacks Consensus Estimate for 2025 revenues is pegged at $18.73 billion, indicating a year-over-year decline of 1.31%. The consensus mark for 2025 earnings is pegged at $9.59 per share. The earnings estimates have moved north by 3.9% over the past 30 days, indicating optimism.

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Investment Outlook for 2025

Looking ahead to 2025, Baidu appears well-positioned to benefit from continued AI adoption and autonomous driving expansion. Management expects its advertising business to gradually improve, particularly once the company begins monetizing AI-generated search results at scale.
The AI Cloud business should maintain strong momentum with continued margin improvement, while Apollo Go is expected to accelerate its ride volume growth significantly in 2025.

Given Baidu's technology leadership in AI, improving operational efficiency, strong financial position, and strategic focus on high-growth areas, the current price could represent an attractive entry point for long-term investors willing to accept some near-term volatility. The company's ongoing transformation positions it to potentially deliver substantial returns as its AI investments continue to mature and scale throughout 2025 and beyond. BIDU stock currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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