Alibaba vs. Baidu: Which Chinese Internet Stock is a Better Bet?

Core Insights - China's Internet giants, particularly Alibaba Group (BABA) and Baidu (BIDU), are navigating a recovery phase after facing regulatory challenges and economic headwinds, with AI emerging as a key growth area [1][3] Company Overview - Alibaba has established a stronghold in e-commerce and cloud services, while Baidu is focusing on search and AI, particularly in autonomous driving [2] - Both companies are now competing to leverage generative AI opportunities, making their comparison increasingly relevant [2] Alibaba's Investment Case - Alibaba's first-quarter 2025 results show total revenues of RMB236.4 billion, reflecting a 7% year-over-year growth, with its Cloud Intelligence Group growing at 18% [4] - The company's ecosystem approach allows for multiple revenue streams, with customer management revenues at Taobao and Tmall increasing by 12% year over year [5] - Alibaba's AI leadership is exemplified by its Qwen large language model, which is gaining traction through a partnership with SAP [6] - The company holds RMB597.1 billion in cash and equivalents, allowing for significant liquidity for investments and shareholder returns, including a $11.9 billion share repurchase [7] - The Zacks Consensus Estimate for fiscal 2026 earnings is $10.62 per share, indicating a 17.87% year-over-year increase [8] Baidu's Investment Case - Baidu's first-quarter 2025 revenue growth was only 3.22% year over year, reaching RMB32.5 billion, which is below market expectations [9] - The company heavily relies on search advertising, which is declining due to shifts in user behavior towards social media and AI alternatives [11] - Baidu's AI Cloud business is growing at 42% year over year but is significantly smaller than Alibaba's, generating only RMB6.7 billion in quarterly revenues [12] - The autonomous driving venture Apollo Go is still in early commercialization stages, with only 1.4 million rides provided in the first quarter of 2025 [13] - The consensus estimate for Baidu's 2025 earnings is $9.43 per share, indicating a 10.45% year-over-year decline [14] Valuation and Performance Comparison - Both companies trade at discounts to historical valuations, with Alibaba's P/E ratio at 10.98x compared to Baidu's 8.51x, reflecting Alibaba's superior financial metrics [15] - Year-to-date, Alibaba's stock has surged 41.2%, while Baidu's has only increased by 0.9%, indicating stronger investor preference for Alibaba [10][18] Conclusion - Alibaba is positioned as the superior investment choice due to its diversified business model, strong financial positioning, and effective capital allocation strategy [21] - Baidu faces structural challenges that may hinder its growth potential, making it less attractive for investors at this time [21]