Baidu EV Business Could Trigger Breakout

Baidu Inc. (BIDU) is trading higher on Monday after a top tier analyst raised his price target by $140. The stock posted a two-year high in January after announcing the formation of an intelligent electric vehicle company, forcing Wall Street to consider repricing the search giant at a higher multiple, in line with other manufacturers. The new operation is moving quickly, obtaining permission from the CA Dept. of Motor Vehicles to test driverless autos on Sunnyvale roads.

Baidu Enters Rapidly-Growing Market

The autonomous driving initiative, dubbed ‘Apollo’, is expected to tap into a rapidly-growing market worth at least $12.5 billion in China alone by 2025. The program should generate at least three distinct revenue streams in coming years: robo-taxis, advanced driver-assistance systems (ADAS), and V2X (vehicle-to-everything). In addition, the embedded artificial intelligence modules could find other applications as the program evolves.

Oppenheimer analyst Jason Helfstein raised his price target from $165 to $305 on Monday, noting, “We expect the re-rating based on BIDU’s artificial intelligence businesses to continue, with a solid recovery of the advertising business as macro improvement sustains in China. We believe the recently announced intelligent electric vehicles joint venture with Geely will significantly accelerate the commercialization of Apollo, BIDU’s autonomous driving arm.”

Wall Street and Technical Outlook

Wall Street consensus has improved in the last quarter, lifting to a ‘Buy’ rating based upon 13 ‘Buy’ and 2 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $162 to a Street-high $305 while the stock opened Monday’s session about $18 above the median $221 target. Higher targets, like this morning’s Oppenheimer note, are likely to follow in coming weeks.

The stock topped out at 252 in 2015 and entered a broad trading range with support near 100. A 2018 breakout failed after adding just 32 points, reinforcing range resistance. Price action is nearing this barrier for the third time in six years, suggesting limited upside in coming weeks. However, Wall Street repricing from search engine to EV manufacturer could eventually trigger a strong breakout, with a price target well above 300.

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Disclosure: the author held no positions in aforementioned securities at the time of publication.