Chase the Surge in Alibaba or Baidu Stock?

Core Viewpoint - The resurgence of Chinese tech stocks, particularly Alibaba and Baidu, is driven by favorable market sentiment and a recent trade agreement between the U.S. and China, leading to significant stock price increases since May 12 [1][2]. Group 1: Stock Performance - Alibaba and Baidu stocks have both surged over 30% since the trade deal announcement, reaching new 52-week highs of over $100 per share [2]. - The current stock prices of Alibaba and Baidu have prompted discussions on whether investors should pursue these stocks after their rapid increase [2]. Group 2: AI Expansion - Both Alibaba and Baidu are advancing in AI technology, developing multimodal AI models that can process various data types, benefiting from China's push into AI and restrictions on Nvidia's AI chips [3]. - Alibaba has introduced its new AI model "Qwen3-Max" with over a trillion parameters and plans to invest over $50 billion in AI over the next three years [4]. - Baidu has developed advanced AI systems from its ERNIE model and has secured a strategic partnership with China Merchants Group to implement AI solutions across industries [5]. Group 3: Financial Outlook - Alibaba's total sales are projected to increase by 4% in FY26 and by 11% in FY27, reaching $160.04 billion [6]. - Despite a forecasted 14% decrease in annual earnings for FY26, Alibaba's EPS is expected to rebound by 39% in FY27 [8]. - Baidu's revenue is expected to contract by 1% in FY25 but is projected to grow by 4% in FY26 to $19.14 billion, with EPS anticipated to drop 28% in FY25 before stabilizing and increasing by 9% in FY26 [9]. Group 4: Valuation Metrics - Alibaba and Baidu stocks have seen a significant increase in valuations, with forward P/E multiples of 21.8X and 15.9X, respectively, moving away from recent lows of under 12X [10]. - Both companies maintain respectable price-to-sales ratios under 3X, indicating they are still at the low end of a decade-long range compared to other growth-oriented tech stocks [13]. Group 5: Investment Considerations - With current stock prices above $100, buying Alibaba and Baidu may be less appealing, although their AI expansion positions them as potential long-term investments [14]. - For indirect exposure to the rally in Chinese stocks, investors may consider ETFs such as Invesco China Technology (CQQQ) and iShares China Large-Cap (FXI) [15].