Baidu vs. Alibaba: Which Chinese AI Stock Is the Better Investment Now?

Core Insights - Baidu and Alibaba are leading players in China's tech sector, both focusing on artificial intelligence (AI) and experiencing renewed investor interest due to government stimulus and the growth of AI services [2][3]. Baidu Overview - Baidu has transitioned to an AI-first company, with its AI Cloud business growing 42% year over year, now accounting for 26% of Baidu Core's revenue, up from 20% [3][4]. - The Qianfan model-as-a-service platform is a key driver of Baidu's AI growth, reducing inference costs and enhancing its appeal to enterprise clients [4]. - Baidu launched ERNIE 4.5 and ERNIE X1 models, which promise better performance at lower costs, with plans to open-source ERNIE 4.5 by June 30, 2025 [5]. - Despite a negative free cash flow of RMB 8.9 billion in Q1 due to high AI investments, Baidu maintains a strong operating margin of 16% [7]. - Baidu's core online marketing revenues declined 6% year over year, facing competition from rivals like ByteDance and Tencent [8]. Alibaba Overview - Alibaba has a diversified business model, with its commerce ecosystem contributing over half of its revenue, including platforms like Taobao and Tmall [9]. - Alibaba Cloud revenue grew 18% year over year, driven by strong demand for AI infrastructure, with AI-related product revenue maintaining triple-digit growth for seven consecutive quarters [10]. - The company reported a 12% rise in customer management revenue in its domestic e-commerce segment, supported by increased take rates and the growth of 88VIP memberships [10]. - Alibaba returned $16.5 billion to shareholders through dividends and buybacks, while focusing on AI and core commerce [11]. - The company faced a 76% decline in free cash flow due to high capital expenditures for AI and cloud expansion, contributing to margin pressure [12]. Share Price Performance & Valuation - Baidu's shares have struggled, trading at about 7.84X forward 12-month P/E ratio, while Alibaba's shares have risen 42.4% this year, trading at 11.13X [14][19]. - Analysts expect Baidu's revenue to rise 2.2% to $18.9 billion, while Alibaba's revenue is expected to grow 3.8% to $143.4 billion, with Alibaba's EPS projected to grow 17.9% [16]. Conclusion - Both companies are positioned as leaders in the AI space, with Baidu focusing on autonomous driving and AI cloud services, while Alibaba benefits from a diversified business model that supports consistent revenue generation [22].