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Baidu (BIDU) may be best known as China’s answer to Alphabet’s Google (GOOGL), but that’s not why investors have been buying it hand-over-fist since January. Shares may have pulled back a bit in recent days, yet the stock is still up over 30% so far this year, and remains overheated at current prices.
So, what is driving this excitement? The company recently announced its entry into the electric vehicle (EV) market, which may be heating up in China.
Baidu seems to have a fair shot at striking success in this space, but whether this justifies the stock’s recent price performance remains to be seen. Investors seem to be valuing BIDU stock at a premium, purely based on the EV announcement.
Current valuations might not be as frothy as Tesla (TSLA), but they are still elevated, nonetheless. This is where-in the issue lies. With EV stocks trending lower, BIDU may soon be heading in the wrong direction as well.
Why Investors Remain Extremely Bullish On BIDU
Baidu is often referred to as the “Google of China”, with its main business being its internet search engine. But just like Google in the U.S., the tech giant has diversified into high growth areas such as artificial intelligence (AI) and cloud computing.
The EV catalyst is however what has turned investors extremely bullish on the stock. Baidu will be entering this market via a partnership deal with Chinese automotive company Zhejiang Geely, and as part of the agreement, will provide its Apollo autonomous driving technology, while Geely will contribute its automotive manufacturing expertise.
Will this give the early stage venture an edge against not just Tesla, but against homegrown competitors like Nio (NIO) too? Only time will tell.
It will be years before this venture starts to produce tangible results, yet that hasn’t stopped investors from pricing this potential into BIDU.
It is unlikely that this catalyst alone will manage to move the needle further, in fact, as EV stocks start to slide, BIDU may be set to start heading lower too.