More gain for Qihoo 360 (NYSE: QIHU)? More pain for Baidu (NASDAQ:BIDU)?

T.H. Capital issued a bullish note on Qihoo 360 and a more cautionary note on Baidu this week.

Analyst Tian Hou beleives that Baidu's market share shrank from 70.1% at the end of the first quarter to 68.1% by the end of last month. The pie itself is growing -- and Hou still sees Baidu's average daily page views growing -- but it seems as if Qihoo 360's year-old search engine is starting to gain more traction.

Investors know the score.

Shares of Qihoo 360 have nearly tripled over the past year. Baidu's stock has been treated to an 18% slide.

The search engine that Qihoo 360 rolled out last summer may have been initially gaining share at the expense of smaller engines, but now its growth is coming by gnawing away at Baidu's market stronghold.

T.H. Capital feels that Qihoo 360's market share has grown from 13.9% to 15.6% over the past three months.

Will Qihoo 360 eventually challenge Baidu for search supremacy? Probably not. T.H. Capital points out that Qihoo 360's search queries are being initiated primarily from its market-leading browser. Since Qihoo 360's share of the browser market is roughly 25%, the real challenge will be for the platform to grow beyond that.

Baidu isn't taking this lying down, naturally.

It introduced a mobile browser for Android devices late last summer, and it's also been toiling away in Qihoo 360's realm of online security. Anything that it can do to disrupt Qihoo 360 in its core areas of browsers and antivirus protection could pay off in limiting the size of Qihoo 360's audience for search.

Investors don't necessarily have to choose.

"Just buy both," I argued 10 months ago. The call would've panned out, as Baidu's 16% slide and Qihoo 360's 106% pop would even out for a 45% total return.

Even Hou isn't necessarily bearish on Baidu. He feels that the stock is fairly valued at this point. Back out Baidu's more-than-$10 a share in cash and the stock is trading for less than 17 times his projected earnings of $4.83 a share for Baidu this year.

Yes, buying both still seems like the best plan.