Baidu (NASDAQ:BIDU) will launch a robotaxi service using its Apollo system. The Beijing-based search engine company, long regarded as the Chinese version of Alphabet’s (NASDAQ:GOOGL, NASDAQ:GOOG) Google, will now operate autonomous cars outside of a test environment. This should benefit the company and may give investors an added reason to Baidu stock.
Source: Shutterstock However, it will take more time to determine whether it makes BIDU a trade or it positions the equity for longer-term gains.
Baidu Will Offer the World’s First Robot Taxi Service
A fleet of autonomous cars will drive passengers around the city of Changsha, home to more than seven million in the Hunan province of southern China. They will commence operations by the end of this year. No other company, not even Google, has offered such a service anywhere in the world. Google’s Waymo launched a similar service in Phoenix last year. However, that only affected a limited group of test passengers.
Baidu stock rose by almost 1.5% in Thursday trading following the news. Still, the more significant question pertains to how this affects BIDU long term.
Yes, this gives the company the lead on Google, which has also invested heavily in AI and self-driving cars. Thanks to laws keeping Google mostly out of China, the two companies do not compete directly. However, investors should assume that they compete even if they do not compete. Hence, expect Google to respond to the challenge. This likely temporary lead on autonomous cars will not make Baidu stock self-driving by itself.
Cars Help to Make Baidu Stock at Least a Trade
Still, I think it reinforces the argument for buying Baidu stock, one that has become much stronger in the last year. Chinese companies cannot legally trade on U.S. exchanges. Hence, the holding-company structure of BIDU stock — along with other Chinese stocks such as Alibaba (NYSE:BABA) and Tencent (OTCMKTS:TCEHY) — has put me off to BIDU stock in the past. Still, I think BIDU’s current value prices in this arrangement.
I also see other reasons to take a chance on the Cayman Islands-based holding company tied to Baidu. Thanks in large part to the U.S.-China trade war, Baidu stock has fallen 37% from its high. However, as a Chinese-language search engine, Baidu has never conducted a significant amount of direct business with the United States. Moreover, this slump has helped to take its price-to-earnings (PE) ratio down to around 13.9. This comes in much lower than the 27.9 for Alphabet.
Finally, the charts indicate a range and room within that range for Baidu stock to move higher. Over the last five years, BIDU has mostly remained in the $150- to $265-per-share range. We do not yet know if an end to the trade war or advances in autonomous cars will finally break BIDU stock out of this range.
However, since I last recommended Baidu stock and mentioned this range in January, the equity has risen by about 10%. Hence, seeing the equity return to the top of this range would give BIDU an upside of around 40%. If nothing else, BIDU stock could make for a profitable trade.
Bottom Line on Baidu Stock
Launching self-driving cars in a non-test environment should give Baidu stock a near-term boost. With this move into an actual urban environment, Baidu takes the lead for now in self-driving cars. However, its effects on BIDU stock remain unclear.
Baidu stock has remained in a range for the last five years. With talks of the trade war ending, it has already begun to move up this year. The real test comes when it approaches the $265 per share range. Will it break through and spark a bull market in Baidu stock, or will the range-bound trading continue?
The answer to this question remains unknown, but its self-driving car could help spark a 40%-plus gain. Whether it accomplishes more remains to be seen.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.
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