Baidu is in talks to raise money for a stand-alone artificial intelligence (AI) semiconductor company in a move to diversify its operations beyond advertising, CNBC has learnt. US-listed shares rose 2.3% in Thursday’s pre-market session after closing 3.1% higher on Feb. 10.
According to CNBC, the chip company would be a subsidiary of the Chinese internet services company. Venture capital firms, GGV and IDG Capital, are already involved in early discussions to invest in the chip company where Baidu (BIDU) would be a majority shareholder, CNBC added.
Currently, the company has an in-house semiconductor unit to develop its Kunlun processor to process data for AI applications. However, a stand-alone semiconductor company could help the company commercialize its operations in a better way, according to the report.
One possibility cited by CNBC is that Baidu could sell the chips to customers across various industries, including automobile industries. Currently, automobile industries are facing a chip shortage that has impacted production. (See Baidu stock analysis on TipRanks)
This month, General Motors (GM) warned of a semiconductor shortage impacting its production lines this year and announced the temporary shutdowns at some of its production plants. Additionally, Ford (F) has estimated that a semiconductor shortage could impact 10% to 20% of its planned production in the first quarter of this year.
Following the news, Oppenheimer analyst Jason Helfstein reiterated a Buy rating and a price target of $305 on the stock. Helfstein said, “With the accelerating adoption of 5G, IoT, and AI (autonomous driving, smart speakers, robots, AR/VR, etc.), demand for AI chips is set to surge in the coming years.”
The analyst added, “We believe BIDU is well-positioned to capture this opportunity—BIDU can deploy its chips within its ecosystem (Baidu Cloud, Apollo autonomous driving, DuerOS smart speakers, etc.) and achieve fast product iteration, while other chip designers might have to rely on partners’ products to achieve initial commercialization.”
The rest of the Street is bullish about the stock with a Strong Buy consensus rating. That’s based on 13 analysts recommending a Buy and 3 analysts suggesting a Hold. The average analyst price target of $244.13 implies 19.7% downside potential to current levels.
According to TipRanks Smart Score system, Baidu scores a 9 out of 10, indicating that the stock has a high likelihood of outperforming the market.