2019 wasn’t a great year for Baidu (NASDAQ:BIDU). The company encountered such headwinds as the slowdown of the Chinese economy, the country’s trade war with the U.S., and competition from several companies that is eating away at its core business. Baidu’s shares lost 20% of their value last year, seriously underperforming the S&P 500‘s 29% return over the same period.

However, Baidu remains one of the most important tech players in the Chinese market, and the company rallied in the beginning of 2020 and beyond. Is Baidu stock a buy today, or should investors keep their distance? Here are three reasons why Baidu shares can be a good investment going forward:

Baidu’s Potential Listing in Hong Kong Could Gain Higher Valuation For The Company

Alibaba recently debuted in Hong Kong, with its stock price popping in the opening day. The company raised billions of dollars in capital. Demand for Alibaba was oversubscribed many times over, indicating strong demand from Chinese investors. 

Given Alibaba’s successful listing, the capital market for ‘coming home’ debuts in Hong Kong is now open after being closed for months due to the protests. 

An open market and Alibaba’s return to Greater China could foreshadow the potential return of Baidu. If Baidu lists in Hong Kong, it could potentially gain a higher valuation like Alibaba. The company could raise capital to help it pivot into artificial intelligence. If this happens , Baidu also could invest more heavily in search to fight off ByteDance. 

Improved Quarterly Results

After several quarters of bearish numbers, Baidu’s third-quarter results were encouraging. Sales rose 7% sequentially to RMB 28.1 billion and were flat year-on-year. And growth might continue to pick up. Baidu management expects sales from Baidu core to grow between 0% to 6% year-on-year for the fourth quarter. 

The results seemed to indicate that the ad market in China is improving. If the ad market improves and Baidu maintains its search market share, Baidu could have a string of better quarters ahead. 

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Baidu’s Artificial Intelligence Efforts

Baidu has been trying to pivot into ‘AI’ for a while, transitioning so that its main products are AI based. Yet, due to the capital and time needed to make self-driving car software and to capture enough market share in smart speakers to successfully monetize it, Baidu’s pivots have mainly hurt its margins. 

While those efforts continue to be produce losses, the company has started to make more progress in both areas. 

In the third quarter, Baidu gained more autonomous driving licenses across China, and the company’s self-driving car software powered China’s first robotaxi pilot program in September. Although it is by no means market ready, Baidu’s self-driving car software efforts continues to make progress. 

In terms of AI operating systems, monthly voice queries of Baidu’s smart device operating system, DuerOS, rose 4.5-fold year-on-year to surpass 4.2 billion in September. The company’s Xiaodu smart speakers powered by Baidu’s DuerOS were number one in terms of shipments in the second quarter.Once Baidu gains enough of a hold in the smart speaker market, it can monetize the asset better, and Baidu’s financial results will improve. 

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