Chinese Tech Stocks Surge Amid U.S. Market Challenges
In recent weeks, investor interest has sharply shifted toward Chinese tech stocks, prominently featuring Alibaba BABA and Baidu BIDU. This trend arises amid a decline in U.S. equities, partially attributed to President Trump’s tariffs aimed at traditional trade partners like Canada and Mexico, rather than adversaries like China.
A significant factor enhancing Alibaba and Baidu’s appeal is their expansion into artificial intelligence (AI), especially following the advancements made by China-based DeepSeek, which is making AI technologies more accessible.
New AI Developments
As a private entity, DeepSeek has limited public presence, but Alibaba has gained attention by launching its new AI reasoning model, QwQ-32B. Similar to Amazon AMZN, Alibaba’s AI efforts represent a strategy to strengthen its market position beyond e-commerce.
Meanwhile, Baidu, the leading search engine in China, is enhancing its AI capabilities, following in the footsteps of Alphabet GOOGL in the United States. Notably, Baidu plans to release an updated version of its AI assistant, “Ernie,” this month, akin to Alphabet’s Google Gemini.
Performance Comparison: Chinese vs. U.S. Tech Stocks
The shift in investor sentiment is illustrated by the performance of Alibaba and Baidu. Year-to-date, Alibaba stock has risen over 60%, while Baidu shares have gained 12%. In contrast, shares of Amazon and Alphabet have declined 10% and 13%, respectively, with broader indices reflecting negative trends as well.
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Future Projections and Earnings Revisions
Looking ahead, Alibaba is projected to see its revenue increase by 6% in fiscal years 2025 and 2026, targeting annual sales of around $147 billion. Additionally, Alibaba’s earnings are slated to rise by 2% this year and surge by 23% in FY26 to $10.83 per share. Notably, earnings per share (EPS) estimates for FY25 have risen by 1%, and those for FY26 increased by 6% in the last month.
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For Baidu, total sales are expected to rise by 1% in FY25 and by another 4% in FY26, targeting $19.52 billion. Baidu’s EPS is anticipated to decline by 9% in FY25 but rebound with a 16% increase in FY26, reaching $11.17. In the past month, Baidu has seen its EPS estimates for FY25 and FY26 rise by 4%, respectively.
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Valuation Insights for BABA and BIDU
Despite a significant rally that has brought Alibaba stock to around $140, it still trades at a forward earnings multiple of 15X. Baidu shares are at $94 with a 9.6X multiple. In comparison, Amazon and Alphabet have higher forward earnings multiples at 30.7X and 18.6X, respectively.
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Conclusion
While Baidu’s lower valuation may attract attention, it holds a Zacks Rank of #2 (Buy), whereas Alibaba boasts a Zacks Rank of #1 (Strong Buy). With ongoing positive revisions in earnings estimates, both companies are positioned for potential upside, while Alibaba’s growth trajectory is likely enhanced by its innovative AI advancements.
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This article originally published on Zacks Investment Research (zacks.com).
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