What happened

Shares of Baidu (NASDAQ:BIDU) rose 55.6% in December, according to data from YCharts. The Chinese search engine giant's stock surged following a report from Reuters indicating that the company would likely enter the electric vehicle (EV) market.

BIDU Chart

BIDU data by YCharts

EV stocks have been incredibly hot over the last year, with names including Tesla and NIO posting huge gains as investors have scrambled to get a piece of what could be a powerful long-term growth trend. Baidu has technology expertise that could make it a strong player in the space, and the excitement surrounding the company's potential entrance in the EV market helped its stock close out 2020 with a gain of roughly 71% on the year. 

A person holding a robot icon.

Image source: Getty Images.

So what

Baidu announced on Dec. 8 that it had expanded its approved share buyback program from $3 billion to $4.5 billion, signaling that it believed its shares were undervalued. With news emerging that the company has been looking for manufacturing partners and is likely to make a substantial push in the EV market, investors clearly agreed.

Baidu's early leadership in artificial intelligence (AI) and self-driving technologies could help it become a major player in the EV space. The company also has a relatively close working relationship with the Chinese government, and its Apollo software has already been adopted as a core component of some of the country's national self-driving vehicle initiatives. 

Now what

After closing out 2020 with a month of strong gains, Baidu now has a market capitalization of roughly $74 billion and trades at approximately 21 times this year's anticipated earnings. 

The company's core search and digital-advertising business has been struggling to deliver growth, but the business has still been posting solid profits, and the push into the EV market has created new excitement for the stock. While the market's reappraisal of Baidu as a player in the high-growth electric vehicle market is a recent development, the company's automotive push has been in the works for years, and its self-driving tech is significantly ahead of many competitors.

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