Chatbots Drive Baidu's Stock Price to Unprecedented Levels

Baidu Inc. is now under pressure to deliver a ChatGPT-style service that has already garnered buzz.

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The stock of China's largest search engine has risen 45% in Hong Kong this year since the company announced its plans to launch an artificial intelligence chatbot in March. It could be the country's biggest entry into the next big thing, with Baidu shares heading into the overbought territory after the move. The company's gains have exceeded those of Alibaba Group Holdings Ltd. and Tencent Holdings Ltd.

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Baidu's ChatGPT tool might spark the Wall Street craze sparked by OpenAI, convincing investors and users of its new service. Though Nvidia Corp. is regarded as a preferred choice for AI cohorts, it has achieved near-top performance in the S&P 500. One example of a small stock that has fallen is BuzzFeed Inc. The stock's rally collapsed within a short span of time.

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According to Kai Wang, an analyst at Morningstar, Baidu's Ernie Bot is too new to determine how much of its valuation can be quantified. This will increase Google's competitiveness against other search engines and make advertising on its platform more attractive, according to Wang.

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The Hong Kong-listed shares of Baidu are just 1.1% below their consensus target price for the next 12 months, indicating that the company has little more room to capitalize on AI advances until its fundamentals improve.

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The rally may have also been overdone according to an important technical indicator. Baidu's relative strength index has breached the overbought threshold of 70, while Alibaba and Tencent remain well below it. SoundHound AI Inc. and GeneDx Holdings Corp. were also up in price, as were Baidu's American depositary receipts, which rose by 11%.

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The company plans to integrate Ernie into its search engine as it moves from online marketing to deeper technology. Baidu is investing billions of dollars in AI research as it transitions from online marketing to deeper technology. With its conversational search results, users will be able to search with ease.

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Vey-Sern Ling, managing director at Union Bancaire Privee, says it is unlikely for generative AI to result in real earnings in the near future. The excitement surrounding Baidu's new chatbot could help raise investor awareness of Baidu's AI capabilities, although marketers haven't given the technology much credit.

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In spite of the AI frenzy, the firm's ad revenue projections were optimistic.

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JPMorgan Chase & Co. and Macquarie Capital Ltd. analysts predict an improvement in ad revenue and margins in 2023 following a lackluster fourth quarter. Despite a drop in revenue, Baidu is expected to announce its earnings next week.

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Upon launch in March, Baidu Ernie's share price is poised to grow exponentially, according to Macquarie's Esme Pau. There will be a secular growth driver for the share price as a result of the product. This led her to raise her price target for Baidu shares in the first quarter of this year.

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In March, the company will release new features, applications, and a product roadmap, but we have not yet integrated its financial impact into our operational planning.