Recently, Baidu has surged from under US$140 per share to over US$200 per share, with much of the rally occurring in December of last year.
In that month, Baidu management announced that they were upping the potential buyback program to US$4.5 billion from the previous US$3 billion. Reuters also reported in the middle of December that Baidu is considering entering into the EV sector.
Of the two, I think the Reuters EV news is mainly why Baidu stock has surged higher.
Optimism in the Sector
Currently, the EV arena is filled with a lot of bubble-like optimism. While a good number of bubbles burst and the resulting damage is very painful, many bubbles also last for a substantial period of time. Because plenty of investors want to play the bubbles, the bubbles often grow bigger and last longer than many expect.
As a result of the bubble-like optimism, the market is giving many existing EV stocks a high valuation.
EV leader Tesla, for example, is worth more than Alibaba according to the market. As of January 7, Tesla is worth over US$700 billion and Elon Musk is neck and neck with Jeff Bezos as the world’s richest person. Alibaba, meanwhile, is worth only around US$630 billion.
Tesla isn’t alone. Chinese EV challenger Nio is also worth a lot. According to the market, in fact, Nio is worth more than GM. As of January 7, Nio has a market cap of US$78 billion versus GM’s market cap of US$61 billion.
Given how small Nio is in relation to GM in terms of vehicles produced, the discrepancy is quite amazing. GM is also solidify profitable while Nio isn’t.
Given the optimism in the sector, I think much of Baidu’s recent rally is probably due to the Reuters EV news. Baidu previously worked more on trying to develop the autonomous driving technology side of things and the purported potential strategy shift was a surprise for many investors.
According to Reuters again recently, Baidu is planning to partner up with Geely on creating its own smart electric vehicle. For the venture, Baidu will reportedly own a majority stake and supply a lot of the software. Geely will reportedly supply a lot of the engineering know-how.
Baidu later confirmed itself that it will work with Geely.
Value and Potential
Unlike many EV companies, Baidu actually has a lot of value. Baidu is a leader in China’s search engine market, and it has invested a lot in autonomous technology over the years. The stock certainly has a more reasonable valuation than other EV stocks such as Nio from my perspective.
If Baidu executes in terms of autonomous driving, its stock rally could be justified given how huge the sector will be.
Baidu might not be alone in terms of internet giants who are trying to get a piece of the EV pie, however. Alibaba has an EV joint venture with SAIC. Apple is also reportedly working on its own EV vehicle.