On Friday, BofA Securities adjusted its outlook on Baidu Inc (NASDAQ:BIDU) shares, a leading Chinese internet company. The firm's analyst has reduced the price target for Baidu to $117 from $128, while still recommending a Buy rating for the stock. The revision reflects recent developments in Baidu's search engine capabilities and broader market conditions.
Baidu has been enhancing its search engine with artificial intelligence, now featuring AI-generated content in 18% of its search result pages, a significant increase from 11% in May.
The company's focus on providing smarter search results and content recommendations has led to the introduction of features such as multi-round conversations and tools for text and image creation. Additionally, Baidu is swiftly integrating an AI Agent into its search results, aiming to improve user experience.
Despite these advancements, the firm notes that the non-monetization of AI-generated search results could put pressure on Baidu's advertising revenue and margins in the near term.
Furthermore, the analyst pointed out that macroeconomic headwinds do not appear to be subsiding, leading to a slight downward adjustment in Baidu Core's second-half total revenue forecast to a 1% year-over-year growth and a revised adjusted operating profit to a 1% year-over-year decline.
To capitalize on its AI technology, Baidu is advancing its ERNIE AI agent, which is designed to interact with search users and provide pre-sales consultations. This move is expected to help advertisers achieve better conversion rates and potentially increase Baidu's budget share.
The revised discounted cash flow (DCF) based price objective reflects a decrease due to less current cash on hand. Despite the lowered price target, BofA Securities maintains its Buy rating, reaffirming confidence in Baidu's leadership in AI technology.
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