DBS turns bullish on Baidu, citing AI-driven cloud and robotaxi gains

DBS Group Research upgraded Baidu to a "buy" rating, significantly raising its ADR target to US$177 from US$85, citing strong growth prospects in its AI-driven cloud and autonomous driving (robotaxi) segments. The firm forecasts Baidu's cloud revenue to grow 27% in 2025 and 20% in 2026, while its Apollo Go robotaxi unit is expanding rapidly overseas and has achieved per-vehicle operating breakeven in Wuhan. Despite past pressure on its advertising business, an AI-driven revamp shows signs of stabilization, contributing to Baidu's shares rallying over 60% year-to-date on AI optimism.

Analysis

DBS Group Research has issued a significant upgrade for Baidu (BIDU), shifting to a "buy" rating and more than doubling its ADR target price to US$177. This bullish stance is predicated on the accelerating growth of Baidu's AI-driven business segments, specifically its cloud computing and autonomous driving divisions. DBS forecasts Baidu's cloud revenue will grow 27% in 2025 and 20% in 2026, fueled by enterprise demand for AI services and large language models. Concurrently, the Apollo Go robotaxi unit has achieved a critical milestone by reaching operating breakeven on a per-vehicle basis in Wuhan and is now aggressively expanding internationally, with new operations and partnerships in the Middle East, Hong Kong, and Europe via a deal with Lyft. While the company's core advertising business has faced pressure, an AI-driven revamp is expected to stabilize performance by the fourth quarter. This positive outlook is reflected in the market, with Baidu's ADRs rallying over 61% year-to-date. However, a note of caution is provided by Nomura, which maintains a "neutral" rating with a lower $135 price target, citing the risk that persistent weakness in advertising could still hinder overall performance.

Key Decisions for Investors

• Investors may view the significant target price upgrade from DBS and Baidu's demonstrated progress in monetizing its AI-driven cloud and robotaxi businesses as a strong bullish signal, supporting a long position.
• Given the stock's sharp rally of over 47% in the past month, investors should be mindful of valuation and the potential for short-term pullbacks, possibly considering a strategy of scaling into a position.
• It is critical to monitor the performance of the legacy advertising business in upcoming quarterly reports, as its stabilization is a key assumption for the bullish outlook and any continued weakness could present a drag on profitability.