Equity Research 9 December 2025 | 9:05PM HKT Baidu.com Inc. (BIDU): Baidu assessing chip subsidiary Kunlunxin's potential spin-off and listing, a step toward unlocking value; Buy What happened: On Dec. 7, Baidu issued a voluntary announcement noting it is in the process of assessing Kunlunxin (Kunlun chip) for a 'Proposed Spin-off and Listing'. Per the release, if it proceeds, the proposed spin-off and listing would be subject to the relevant regulatory approval process. Separately, per a Reuters article, a ...

Summary of China AI Semiconductor Conference Call Industry Overview - The focus is on the **China AI semiconductor industry**, particularly the advancements in AI chip supply and demand dynamics leading up to 2026 [1][2][3]. Key Insights - **Strong Performance**: China's AI-related stocks have shown robust performance in 2025, driven by innovations from **DeepSeek** and local AI chip advancements [1]. - **Consolidation Phase**: The market has entered a consolidation phase since October 2025, raising concerns about the sustainability of growth in the AI sector [1]. - **Future Projections**: The supply chain upside is expected to take center stage in 2026, with significant growth anticipated in AI capital expenditures (capex) [2][12]. Financial Projections - **AI Capex Growth**: AI capex is projected to grow at a **25% CAGR** from 2025 to 2028, reaching **USD 172 billion** by 2028 [2][29]. - **Total Capex for CSPs**: Total capex for China’s Cloud Service Providers (CSPs) and telecommunications is expected to grow at **13% CAGR**, reaching **USD 267 billion** by 2028 [2][27]. - **Healthy Spending**: Total capex for listed players is only **40-60%** of their free cash flow, indicating healthy spending levels [2]. Supply Chain Dynamics - **Bottlenecks**: The primary bottleneck currently is the constrained local advanced logic production capacity, which limits AI chip output [3]. - **Capacity Expansion**: Advanced logic capacity is expected to accelerate starting in 2026/27, leading to a significant increase in local AI chip sales by 2027/28 [3][55]. - **Market Share Shift**: Local players are projected to capture over **90%** of the market share by 2028, especially as NVIDIA's sales in China are not expected to resume due to ongoing investigations [3]. Company-Specific Insights - **Cambricon**: Upgraded to **Outperform** with a price target of **CNY 2,000**, reflecting strong growth potential due to increased AI chip demand [7][10]. - **Hygon**: Rated **Outperform** with a price target of **CNY 280**, based on projected earnings growth [7]. - **Hua Hong**: Rated **Outperform** with price targets of **HKD 100** for H-shares and **CNY 140** for A-shares [8]. - **SMIC**: Rated **Outperform** with price targets of **HKD 100** for H-shares and **CNY 150** for A-shares, driven by advanced logic capacity expansion [9]. - **NAURA and Piotech**: Both rated **Outperform** with price targets of **CNY 600** and **CNY 375**, respectively [10]. Investment Implications - **Sector Ranking**: The investment ranking is **AI chip > Semicap > Foundry**, with a strong preference for AI chip vendors like Cambricon due to growth momentum [15]. - **Defensive Stocks**: Semicap stocks are viewed as more defensive with reasonable valuations, benefiting from the shift in memory demand towards local suppliers [4]. Risks and Challenges - **NVIDIA Resumption**: The biggest risk is if NVIDIA resumes sales in China, which could undermine local vendors [14]. - **Market Sensitivity**: Chinese AI stocks may be affected by broader market trends, including potential crashes in US AI stocks [14]. - **Supply Chain Self-Sufficiency**: The advanced logic supply chain is not fully self-sufficient, which could delay capacity expansion in extreme scenarios [14]. Conclusion - The China AI semiconductor industry is poised for significant growth, driven by local innovations and increasing demand for AI chips. However, potential risks from global competitors and market dynamics must be closely monitored.

Summary of Baidu Inc. Conference Call Company Overview - **Company**: Baidu Inc (Ticker: BIDU.O) - **Industry**: China Internet and Other Services - **Market Cap**: US$40,011 million - **Current Stock Price**: US$115.49 (as of November 19, 2025) - **Price Target**: US$130.00, representing a 13% upside potential Key Points Discussed AI Infrastructure and Development - Concerns regarding supply and demand for proprietary AI infrastructure were highlighted, with a focus on AI monetization across various sectors including search, applications, cloud, and robotaxi [1][5][8] - Baidu's Kunlun chip is noted as a leading domestic AI chip, with strong demand from various sectors such as tech, finance, and manufacturing [8] Revenue Growth and Financial Performance - AI marketing revenue has transformed from traditional bidding ads to AI-driven search, resulting in a significant revenue increase of +262% in Q3, contributing to 18% of the total ad revenue [8] - Overall revenue growth is expected to accelerate, with projections of net revenue reaching Rmb156,300 million by FY2027 [6][8] - The company has invested over Rmb100 billion since the launch of its AI model, Ernie, with expectations of improved monetization in the future [8] Robotaxi Operations - Weekly average rides for Baidu's robotaxi service have reached over 250,000, comparable to global peers [8] - Revenue per mile in China is reported at Rmb1-2, with breakeven achieved in certain cities, while overseas revenue potential is estimated at US$1-2 per mile [8] Capital Management and Shareholder Returns - Baidu holds total cash and investments of US$40 billion as of Q3, with plans to enhance shareholder returns through potential special dividends, buyback programs, and unlocking non-core business value [8] - The company is also considering dual listing and Southbound inclusion possibilities [8] Market Position and Competitive Landscape - The company maintains an equal-weight rating from Morgan Stanley, with an attractive industry view [6] - Risks include intensifying competition in search and online video, which may increase traffic acquisition costs and necessitate more aggressive content investments [10] Future Outlook - Baidu plans to enhance business segment disclosures to provide better insights into its operations and growth strategies [8] - The company is optimistic about the materialization of AI and robotaxi initiatives, which are expected to drive future growth [10] Additional Insights - The fiscal year ending for Baidu is December 2024, with earnings per share (EPS) estimates showing a significant decline in FY2025 before recovery in subsequent years [6] - The company is navigating domestic capacity constraints with a three-year product pipeline for its Kunlun chip [8] This summary encapsulates the critical discussions and insights from the conference call, providing a comprehensive overview of Baidu Inc.'s current position and future prospects in the rapidly evolving AI and internet services landscape.

Summary of Baidu Inc. Conference Call Company Overview - **Company**: Baidu Inc (BIDU.O) - **Industry**: China Internet and Other Services - **Market Cap**: US$48.582 billion - **Current Stock Price**: US$140.23 (as of October 2, 2025) - **Price Target**: Raised from US$100.00 to US$140.00, with a sum-of-the-parts (SOTP) valuation of US$220.00 [1][5][24] Key Points Industry Dynamics - **Advertising Sector**: - Core ads are expected to decline by 15% in FY25, with limited visibility for recovery [2][10] - AI search results are increasing, but monetization remains challenging compared to traditional search [2] - Digital revenue from human and agents is projected to contribute 16% of ad revenue in 2Q [2] AI Cloud Growth - **Revenue Contribution**: Personal cloud is estimated to account for 30% of cloud revenue, benefiting from AI transformation [3] - **Enterprise Cloud**: Subscription revenue is expected to drive over 50% of enterprise cloud revenue [3] - **Growth Forecast**: AI cloud revenue is projected to grow at 32% in FY25 [3] Autonomous Driving Initiatives - **Robotaxi Operations**: Apollo Go operates a fleet of over 1,000 vehicles, providing 2.2 million fully driverless rides across 16 cities [4] - **Profitability**: Wuhan has achieved breakeven in unit economics, but financial contributions from robotaxi services are expected to be limited in the near term [4] Financial Performance and Projections - **Revenue Estimates**: - FY25 total revenue is expected to be flat, with core operating profit projected to decline by 50% due to negative operating leverage [10] - Core revenue and earnings estimates for FY26-27 have been raised by 3-5% due to higher cloud revenue [5] - **Valuation Metrics**: - The stock is currently trading at 17x 2026E, which is close to Tencent and Alibaba valuations but with a weaker growth outlook [11] - Core ads are valued at US$40/share, cloud at US$80/share, and autonomous driving at US$30/share in the SOTP valuation [5][13] Risks and Challenges - **Market Sentiment**: The stock has rallied over 60% in the last two months, driven by bullish sentiment in the AI cloud space, but the core business fundamentals remain under pressure [10][11] - **Competition and Disruption**: There are risks related to competition in search and online video, as well as potential disruptions from AI adoption [48] Investment Considerations - **Long-term Potential**: While the current valuation appears stretched, there is potential for ramp-up in the cloud business and value unlock in AI chip initiatives [11] - **Price Target Implications**: The new price target implies a valuation of 17x 2026E non-GAAP P/E, indicating a cautious outlook despite recent stock performance [33] Additional Insights - **Financial Summary**: - FY25 estimated net income is projected at Rmb 20,046 million, with a decline in operating profit expected [27] - The company is focusing on enhancing shareholder returns and has lowered its WACC and cash discount rates [5] This summary encapsulates the key insights from the conference call regarding Baidu Inc's current performance, future outlook, and the challenges it faces in the rapidly evolving tech landscape.

Core Insights - Baidu, Inc. is recognized as one of the top AI stocks to invest in, with Jefferies maintaining a Buy rating and increasing its price target from $108 to $157, attributing this to Baidu's advancements in AI and acquisition of major customers for collaboration [1][2]. Group 1: Company Developments - Baidu has made significant progress in Kunlun chip development, enhancing its market position in AI Cloud revenue and customer penetration [2]. - The company has experienced rapid growth in its AI agents and digital human products, alongside the global expansion of its Apollo Go autonomous driving platform [2][3]. Group 2: Market Position - Baidu is identified as a leading player in the AI sector, managing China's largest internet search engine and expanding into various AI-driven initiatives, including self-driving technology and conversational AI models like Ernie [3].

Summary of Baidu Inc. Equity Research Call Company and Industry Overview - **Company**: Baidu Inc. - **Industry**: Internet and AI Technology Key Points and Arguments 1. **AI Developments**: Baidu has made significant strides in AI, including partnerships with large customers and advancements in AI Cloud revenue, indicating a strong market position in AI technology [1][2][3] 2. **Cooperation Agreements**: A recent agreement with China Merchants Group focuses on AI applications across various sectors, marking an inflection point in AI application growth [2] 3. **Revenue Growth**: - Digital human revenue increased by 55% QoQ in Q2, contributing approximately 3% to online marketing revenue [3] - AI agents accounted for about 13% of online marketing revenue, with a 50% QoQ increase in Q2 [3] 4. **Cloud Services**: Baidu is recognized as a top player in AI cloud revenue share and penetration among Fortune 500 companies, showcasing its competitive edge in cloud services [3] 5. **Apollo Go Expansion**: The number of fully driverless rides provided by Apollo Go surged by 148% YoY, exceeding 2.2 million rides in Q2 2025, with a total of over 14 million rides since inception [3] 6. **Kunlun Chip Development**: Baidu's Kunlun chips have seen significant development, with a new AI cluster architecture announced for 2024, indicating strong R&D capabilities [3] 7. **Valuation Methodology**: The valuation method has shifted from P/E to SOTP (Sum of the Parts) to better reflect the value of different segments, with a price target adjustment to USD 157 from USD 108 [4][6] 8. **Financial Projections**: - Revenue projections for FY 2023A to 2026E show a slight decline in revenue from USD 134.6 billion in 2023 to USD 128.5 billion in 2025, with adjusted EPS decreasing from 81.10 to 53.20 [5] 9. **Risks**: Key risks include potential macroeconomic headwinds affecting ad demand, increased competition in online video, and slower user growth [17][24] Additional Important Insights 1. **Sustainability Goals**: Baidu aims for carbon neutrality by 2030 and plans to nurture 5 million AI talents over the next five years [12] 2. **Data Security and Privacy Concerns**: As a leading AI company, Baidu faces risks related to data security and customer privacy, which may attract regulatory scrutiny [11] 3. **Market Positioning**: Baidu's strategy emphasizes user experience and high ROI for advertisers, which is expected to drive long-term growth despite macro uncertainties [14][15] 4. **Investment in R&D**: Continued investments in AI and big data are crucial for capturing market potential, with a focus on enhancing user experience [14] This summary encapsulates the critical insights from the Baidu Inc. equity research call, highlighting the company's advancements in AI, financial projections, and associated risks.

Core Viewpoint - Baidu Inc. shares experienced a significant increase due to growing optimism regarding its AI chip potential, with a 16% rise in Hong Kong, marking the largest gain in over three years, adding $6.4 billion in market value [1]. Group 1: Stock Performance and Analyst Ratings - The stock surged after Arete Research Services upgraded its rating on Baidu's American depositary receipts from sell to buy, reversing its previous stance held since May [1]. - Other analysts from Citigroup and Goldman Sachs also expressed positive outlooks on Baidu, highlighting growth potential in its cloud business and recent updates to its reasoning model [2]. - Baidu's shares have increased over 45% this month, outperforming peers, as analysts become more optimistic about the company's AI strategies following past disappointments [3]. Group 2: Options Activity and Market Sentiment - As the stock price rose, options trading activity surged, with nearly 170,000 contracts traded on Wednesday, more than three times the 20-day average, indicating heightened market interest [4]. - The derivatives market has seen a record number of trades recently, reflecting increased investor confidence in Baidu's future prospects [4]. Group 3: Strategic Partnerships and AI Developments - Baidu signed a strategic cooperation framework agreement with China Merchants Group to collaborate on AI technologies, which could lead to a significant multi-year contract boosting cloud revenue [5]. - The Kunlun unit of Baidu announced that its latest chip version has achieved mass production, further enhancing its position in the AI chip market [5]. - In August, Kunlun secured orders from China Mobile to power AI servers, with contract values reportedly exceeding those of competitors [6]. - Goldman Sachs noted that Baidu's latest AI model, Ernie X1.1, has shown significant improvements, surpassing the performance of the DeepSeek model [6].

Upgrades - Loop Capital upgraded Union Pacific (UNP) to Hold from Sell with a price target of $227, increased from $214, noting shares are down 5% year-to-date and valuation multiples are modestly above five-year lows [2] - BofA upgraded Prologis (PLD) to Buy from Neutral with a price target of $130, up from $118, citing improved lease conversion rates in Q3 compared to Q2 and positive demand-supply dynamics expected through 2026 [3] - Goldman Sachs upgraded Hershey (HSY) to Buy from Sell with a price target of $222, raised from $170, highlighting a compelling risk/reward scenario after multiple guidance reductions [4] - Arete upgraded Baidu (BIDU) to Buy from Sell with a price target of $143, emphasizing the potential of Baidu's Kunlun chip venture to offset challenges in its online advertising business [5] - Citizens JMP upgraded CoreWeave (CRWV) to Outperform from Market Perform with a price target of $180, projecting growth of its GPU-as-a-service business to an estimated $300 billion from $3 billion to $4 billion currently [4] Downgrades - TD Cowen downgraded Warner Bros. Discovery (WBD) to Hold from Buy with an unchanged price target of $14, expressing concerns about the stock's risk/reward after a recent rally [6] - Rothschild & Co Redburn downgraded Live Nation (LYV) to Neutral from Buy with a price target of $170, up from $144, indicating slower margin expansion and reduced earnings upside potential [6] - Stifel downgraded VF Corp. (VFC) to Hold from Buy with a price target of $16, increased from $15, stating that the stock's risk-reward is now balanced after a 12.5% one-month return [6] - JPMorgan downgraded Camp4 Therapeutics (CAMP) to Neutral from Overweight without a price target, noting early-stage challenges in its lead program despite a cash runway into 2027 [6] - JPMorgan downgraded Neumora Therapeutics (NMRA) to Underweight from Neutral without a price target, citing a failed Phase 3 trial for its treatment in major depressive disorder [6]