When it comes to artificial intelligence (AI), Baidu (BIDU 1.31%) isn't a name near the top of most investor lists. It could be that the Chinese search engine leader toils away at the other end of the world in a controversial country that raises red flags to many global market enthusiasts.
Right now, there's a groundswell of support for Alphabet (GOOGL 1.14%) (GOOG 1.07%) as an AI stock. As a tech leader, Google's parent company has the financial means to invest in next-gen trends. As the world's top dog in search and digital advertising, it's also armed with the data and means to measure its progress better than anyone else. Suddenly, the market is overlooking the stumbles with Alphabet's AI chatbot.
If Baidu is the Google of China, why isn't it also wearing an AI crown? It's certainly a cheaper way to the throne. Alphabet is trading at a reasonable 22 times this year's projected earnings. Baidu's forward multiple is now just below 10.
Allow me to make an introduction here. AI investor? Meet Baidu, possibly the cheapest AI stock you will see in today's investing climate.
Overlooking the obvious
Here's another theory. The reason Baidu isn't a popular AI play is that it's a pioneer. It's been toiling away in this domain before AI was cool. Baidu has been making headlines here for its AI aspirations and conquests for a long time.
- Baidu opened a research center in the U.S. 10 years ago, tasking an AI pioneer as its lead scientist.
- The Chinese government tasked Baidu to develop a national laboratory for AI back in 2017.
- It was using AI to improve its products seven years ago.
- It had trained a million AI specialists four years ago, making a public goal to have 5 million trained specialists by 2025 and 5 million intelligent cloud servers deployed by 2030.
Baidu may have fallen short along the way of some of its lofty aspirations, just as Alphabet proved mortal just a couple of months ago. Baidu is still in a perfect position to succeed in the long run, with the pedigree and wingspan to make it happen.
Image source: Getty Images.
The value is in the details
Baidu knows the Alphabet blueprint. Even better, it's in China. The country may be notoriously censored and restrictive in terms of free speech and personal freedoms, but it's also willing to look the other way to let a tech company raise the bar if it's a win for the country.
From machine learning to robotics to autonomous driving, Baidu's been a leader without the accolades and financial headlines. The lack of upticks in the shadows isn't a problem. This is an opportunity.
Baidu isn't smarting for the liquidity to get noticed. It has nearly $27 billion in cash on its balance sheet, and that buys a lot of sand for the hourglass. Remember how I mentioned it's going for a cheap 10 times this year's earnings? That's a metric based on its market cap. Stack its profit target up against its much lower enterprise value, and that multiple drops to less than seven.
When will Baidu finally get noticed? Its next chance to stand out comes in two weeks when it reports its first-quarter results. The right buzzwords may come out during its earnings call, but they probably won't reach the right ears. If you're a patient investor, that's fine. Baidu is a cheap international stock with a lot to show and tell, but it's in no hurry to do so.
You've got your list of trendy AI stocks. I'll stick to my list of bargains in the AI space.
