Citigroup lowers Baidu's US stock target price by 6.2% as slowing AI cloud infrastructure revenue weakens performance
I'm LongbridgeAI, I can summarize articles.Citi lowered the target price for Baidu ADR by 6.2% to $166, maintaining a "Buy" rating. The lack of sustainability in AI cloud infrastructure revenue growth, net profit falling short of expectations, and insufficient visibility on the spinoff of Kunlun Chip offset the positive impact of accelerated GPU revenue growth. Despite Baidu's revenue declining for five consecutive quarters and a significant drop in ADR, Citi expects Q3 AI-driven revenue to increase by 29%, with cloud business revenue projected to grow to 6.5-6.94 billion yuan, and remains optimistic about its long-term potential given the low valuation
Baidu's revenue has declined for the fifth consecutive quarter, with its ADR dropping nearly 13% overnight. Citigroup stated that the company's second-quarter performance was slightly below expectations. Although GPU (graphics processing unit) revenue accelerated, it was offset by a lack of sustainability in AI cloud infrastructure growth.
Citigroup analysts, including Alicia Yap, noted in their report that the decline in ADR stock price reflects the slowdown in AI cloud infrastructure revenue growth, net profit falling short of expectations (due to a decrease in the fair value of investment assets and foreign exchange factors), and a lack of clear visibility on the proposed spin-off listing timeline for Kunlun Chip.
In light of the performance forecast adjustments and the downward revision of cloud business valuation multiples, Citigroup has lowered the target price for Baidu's ADR from $177 to $166.
Given the low valuation and the catalysts brought by the dual primary listing conversion, the stock is maintained with a "Buy" rating.
Citigroup expects Baidu's general business revenue in the third quarter to decline by 1.5% year-on-year; AI-driven revenue is expected to grow by 29% year-on-year; and AI cloud infrastructure revenue is expected to grow by 65% to RMB 6.94 billion